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4) Suppose the balance sheet of the banks is the following: Assets: Mortgage 2 years zero coupon 100 USD (rate 4%; convexity 25) Liabilities and

4) Suppose the balance sheet of the banks is the following: Assets: Mortgage 2 years zero coupon 100 USD (rate 4%; convexity 25) Liabilities and equity: Deposit one year zero coupon 75 USD (rate 2.5%,convexity and equity 25 USD) Estimate the impact of a 25 bps increase on the bank value applying the convexity gap approach

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