A bank has the following interest-bearing assets and liabilities. The net annual interest (stated in terms of simple annual compounding) is given after each security name. The mortgage, Coupon Bond, and CDs have fixed future cash-flows, whereas the Business Loan automatically adjusts based on the current federal funds rate. The bank is also borrowing on a daily rolling basis from other banks at the current federal funds rate. The current federal funds rate is 3%

Assets	Value (millions)	Principle	Duration (in years)
Fixed Rate Mortgage (5%)	$70	$70	6
Adj. Business loans (Fed Funds + 3%)	$30	$30	0
Coupon Bonds (Coupon 4%)	$20	$20	5
Liabilities
Certificates of Deposit (non renewable, 3%)	$50	$50	2
Daily Borrowing from Money Market (fed funds rate)	$30	$30	0

Based on the $-Duration of assets liabilities, would you expect the book value of the bank to increase or decrease if interest rates increased? (please type increase or decrease)

Based on only the assets and liabilities listed, what is the current book value of equity of this bank?

Suppose the federal funds rate dropped from 3% to 2% (assume that all interest rates and discount rates also drop by 1%) What is new best estimate of annual interest income?

What is the new asset value of the fixed rate mortgage?