Q5. Suppose that a bank has $5 billion of one-year loans and $30 billion of five-year loans. These are financed by $25 billion of one-year deposits and $10 billion of five year deposits. Explain the impact on the banks net interest income of interest rates increasing by 2% every year for the next three years.

Q6. Suppose that a bank has $5 billion of one-year loans and $35 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the banks return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%.