Given the following information regarding Bank XYZ: DA = 3 years, DL = 5 years, A = $100 million, E = $10 million, we have a flat yield curve that is expected to fall from 8 to 7% in the next 6 months.

Answer the following three questions related to this information:

If interest rates, contrary to what was expected, rise from 8 to 10%: What will be the effect on Capital (Equity, i.e., E), ignoring decimals?

1.- E = +$1,388,889

2.- E = - $1,388,889

3.- E = +$1,430,910

4.- E = - $1,430,910

5.- Other