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3. A bank has following balance sheet Asset Liability and Equity $1 million bond, maturity 10 years, $900,000 bond, maturity 1 year, coupon rate=10% coupon

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3. A bank has following balance sheet Asset Liability and Equity $1 million bond, maturity 10 years, $900,000 bond, maturity 1 year, coupon rate=10% coupon rate 10% Equity capital $100,000 Total: $1 million Total $1 million a. Suppose market interest rate increases to 20%, show what happen to the bank insolvency? b. How to protect bank equity? Explain

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