(i) Suppose you are the newly appointed Chief Risk Officer (CRO) of Liberty National Bank. The bank has $200 million of assets which have an average duration of seven years and $185 million of liabilities which have an average duration of five years. The current interest rate is 5 percent annually. Conduct a duration analysis for the Liberty National Bank and show what will happen to the equity of the Liberty National Bank if interest rates suddenly rise by 4 percentage points. Show all calculations.

(ii) Based on your answer for (i), does Liberty National Bank face failure? As CRO, list three actions you could take to reduce the Liberty National Bank's interest-rate risk.

(iii) As CRO of Liberty National Bank, you are looking at the differences between a "bail-out" and "bail-in" for failed banks, Describe two key differences between "bail-outs" and "bail-ins." Place citations at the end of the exam paper.