Burnaby City Bank has the following balance sheet:

Assets

Liabilities

Reserves

$10m

Chequable Deposits

$80m

Loans

$65m

Capital

$20m

Bonds

$____

a) Calculate the amount of bond holdings, based on the information given in the balance sheet.

b) The bank manager estimates the average duration of assets to be 6 years, and average duration of liabilities to be 2 year. Now market interest rate rises from 2% to 5%. Will the bank capital increase or decrease? By how much? Show your calculation for full mark.

c) Suppose the bank's rate-sensitive assets are $30m, and rate-sensitive liabilities are $50m. What will happen to the profit when the market interest rate rises from 2% to 5%? Show your calculation for full mark.