On p. 250 in the textbook, Problem 11-12, Snowman Bank, N.A. has a portfolio of loans and securities that is expected to generate cash inflows for the bank. Include a spreadsheet to show your calculations. In addition, answer the following questions in your paper:

What is the duration of Snowmans portfolio of earned assets, and of its deposits and money market borrowings?

What will happen to the banks total returns, assuming all other factors are held constant, if interest rates rise? If interest rate fall?

Given the size of the duration gap you have calculated, in what type of hedging should Snowman engage?

If the bank has total assets of $20 billion and total liabilities of $18 billion, by how much would the value of Snowmans net worth change as a result of this movement in interest rates?

Suppose, on the other hand, that interest rates decline from 4.25% to 3.5%. What happens to the value of Snowmans net worth in this case, and by how much in dollars does it change?

What is the size of its duration gap?

e cel 11. Snowman Bank, N.A., has a portfolio of loans and securities expected to generate cash inflows for the bank as follows: Annual Period in Which Cash Receipts Are Expected Current year Two years from today Three years from today Four years from today Five years from today Expected Cash Inflows of Principal and Interest Payments $1,275,600 746,872 341,555 62,482 9,871 Deposits and money market borrowings are expected to require the following cash outflows: Annual Period during Which Cash Payments Must Be Made Current year Two years from today Three years from today Four years from today Five years from today Expected Cash Outflows of Principal and Interest Payments $1,295,500 831,454 123,897 ,005 If the discount rate applicable to the previous cash flows is 4.25 percent, what is the duration of Snowman's portfolio of earning assets and of its deposits and money mar- ket borrowings? What will happen to the bank's total returns, assuming all other fac tors are held constant, if interest rates rise? If interest rates fall? Given the size of the duration gap you have calculated, in what type of hedging should Snowman engage? Please be specific about the hedging transactions needed and their expected effects. e cel 12. Given the cash inflow and outflow figures in Problem 11 for Snowman Bank, N.A. suppose that interest rates began at a level of 4.25 percent and then suddenly rise to 4.75 percent. If the bank has total assets of $20 billion, and total liabilities of $18 billion, by how much would the value of Snowman's net worth change as a result of this movement in interest rates? Suppose, on the other hand, that interest rates decline from 4.25 percent to 3.5 percent. What happens to the value of Snow man's net worth in this case and by how much in dollars does it change? What is the size of its duration gap