Q. 4 (2 points) Refer to the following information on the balance sheet of FNB to answer Q. 4 and Q. 5:

Assets__________________________ Liabilities

Variable-rate assets: $10 billion Variable rate liabilities: $20 billion

Fixed-variable assets: $40 billion Fixed-rate liabilities: $20 billion

Net worth: $10 billion

Suppose that the (average) duration of assets is 5 years and the (average) duration of liabilities is 3 years. We further assume that the market interest rate rises from 3% to 4% by 2 percentage point.

(1) How much will the market value of the bank assets change (increase or decrease)?

(2) How much will the market value of the bank liabilities change (increase or decrease)?

(3) Calculate the change in the value of net assets (assets liabilities) of First National Bank.

Q. 5 ( 2 points) Now suppose that the (average) duration of assets is 3 years and the (average) duration of liabilities is 5 years. We further assume that the market interest rate rises from 3% to 4% by 1 percentage point.

(1) How much will the market value of the bank assets change (increase or decrease)?

(2) How much will the market value of the bank liabilities change (increase or decrease)?

(3) Calculate the change in the value of net assets (assets liabilities) of First National Bank..