Consider the following two banks and this original scenario.

Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yield to maturity (YTM).

Bank 2 has assets composed solely of a 7-year, 12 percent yield to maturity, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed with a 10-year, 8.275 percent coupon, $1,000,000 face value CD with a yield to maturity of 10 percent. All securities except the zero-coupon bond pay interest annually.

1. Repeat step (i) using a 10 percent increase in interest rates, from the original scenario.

Bank 1

Old MV_A: _______ Old MV_L: ________ Old Net Worth: ___________

New MV_A: _______ New MV_L: ________ New Net Worth ___________

Bank 2

Old MV_A: _______ Old MV_L: ________ Old Net Worth: ___________

New MV_A: _______ New MV_L: ________ New Net Worth ___________