Consider the following two banks:

$$ Bank $1$ has assets composed solely of a $20-$year, $9$ percent coupon, $$1$ million loan with a $9$ percent yield to maturity. It is financed with a $20-$year, $7\mathrm{.}5$ percent coupon, $$1$ million CD with a $7\mathrm{.}5$ percent yield to maturity.

$$ Bank $2$ has assets composed solely of a $8-$year, $11$ percent, zero$-$coupon bond with a current value of $$433,926\mathrm{.}50$ and a maturity value of $$1,500,000.$ It is financed with a $15-$year, $8\mathrm{.}5$ percent coupon, $$1,000,000$ face value CD with a yield to maturity of $10$ percent.

All securities except the zero$-$coupon bond pay interest annually.

If interest rates rise by $1$ percent $(100$ basis points$),$ what is the difference in the value of the assets and liabilities of each bank?

Institution Initial Assets Initial Liabilities

Bank $1$ $$1,000,000$ $$1,000,000$

Bank $2$ $$433,926\mathrm{.}50$ Solve for this...

Asset Value Difference Bank $1$: $

Liability Value Difference Bank $1$: $

Asset Value Difference Bank $2$: $

Liability Value Difference Bank $2$: $