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A bank has the following balance sheet: AssetsLiabilities Rate-sensitive Rate-sensitive assets$120m liabilities$75m Fixed-rate Fixed-rate assets120mliabilities125m Equity40 m If the average duration of assets is 4

A bank has the following balance sheet:

AssetsLiabilities

Rate-sensitive Rate-sensitive

assets$120m liabilities$75m

Fixed-rate Fixed-rate

assets120mliabilities125m

Equity40 m

If the average duration of assets is 4 years, while the average duration of liabilities is 2 years, by how much (in dollar terms, $) and in which direction (increase or decrease) will this banks new worth or equity (E) change as a result of the 4 percent reduction in interest rates?

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