1. A bank invested $50 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $50 million, one-year liability paying 8 percent interest per year to pay for it.

• Is the bank short funded or long funded?
• What isthe bank's net interest incomein year one?
• What will be the bank's net interest income in yeartwo if at the end of the first year all
• interest rates have decreased by 1.5 percent (150 basis points)?