1.The First National Bank's Assets and Liabilities are given in the following table

Assets $250M Liabilities $205M

Equity $45M

TOTAL $250M TOTAL $250M

The duration of the assets is 5 years and the duration of the liabilities is 3 years. The interest rate on both the assets and the liabilities is 3.5%. The bank is expecting interest rates to increase from 3.5% to 5% over the next year.

a.What is the duration gap for the First National Bank? (5pt)

b.What is the expected change in the market value of net worth as a percentage of assets over the next year? (5pt)