1. If the manager of the First National Bank revises the estimates of the duration of the banks assets to four years and liabilities to two years, what is the effect on net worth if interest rates rise by 2 percentage points?

2. Given the estimates of duration in Problem 1, how should the bank alter the duration of its assets to immunize its net worth from interest-rate risk?

3. Given the estimates of duration in Problem 1, how should the bank alter the duration of its liabilities to immunize its net worth from interest-rate risk?

Assume that the First National Bank has the balance sheet shown below, the income gap is currently $17.5 million, and interest rates are initially at 10%