1. (10 points) Suppose a bank's assets and liabilities have been classified into assets and liabilities that are rate sensitive and those that are not. The data (in millions of dollars) are as follows: Assets Short-term 35 securitiese Rate Sensitive Liabilities Variable 20- Rate CDse Sensitive Short-term 252 debte 50- Variable mortgage Long-term 5- Fixed Rate- securitiese Long-term 50- Fixed Rate- debte - 10- 52 Physical capital Capital (equities) Total - 100- Totale 1004 a) (3 points) Calculate the effect of a decline of interest rates by 3% on bank income. Clearly indicate the direction (sign) of the change and the unit of measurement. SHOW your calculations! b) (3 points) Calculate the effect of a decline of interest rates by 3% on interest margin. Clearly indicate the direction (sign) of the change and the unit of measurement. SHOW your calculations! c) (4 points) Supposed the bank management is trying to change the sizes of their assets and liabilities such that the rate change (re decline of interest rates by 3%) produces an interest income of $1.35 million. Fill in the balance sheet to achieve such profit. Assets Short-term securities Rate Sensitive- Liabilities Variable Rate CDse Sensitive- Short-term debte Variable mortgage Long-term Fixed Rate- securities Long-term Fixed Rate- debt Physical capitale Capital (equities) Total - Totale