5.10 Consider the following bank balance sheet: CHAPTER 5 AN OVERVEW OFASSET LLABUTY MANAGEMENT (ALM) 145 Assume that the three-year Treasury bond yields 6 percent, the ten-year municipal bond yields 4 percent, the one-year CD pays 4.5 percent, and the five-year note pays 6 percent. Assume that all instruments have annual coupon payments. (a) What is the weighted average maturity of the assets? Liabilities? (b) Assuming a one-year time horizon, what is the dollar gap? (c) What is the interest rate risk exposure of the bank? (d) Calculate the value of all four securities on the bank's balance sheet if interest rates increase by 2 percent. What is the effect on the value of the equity of the bank? 5.11 A bank issues a $1 million one-year note paying 6 percent annually in order to make a $1 million corporate loan paying 8 percent annually. (a) What is the dollar gap (assume a one-year time horizon)? What is the interest rate risk exposure of the bank? (b) Immediately after the transaction, interest rates increase by 2 percent. What is the effect on the asset and liability cash flows? On net interest income? (c) What does your answer to (b) imply about your answer to (a)