Question one: 12 points Assume Bank one has the following balance sheet Also assume the duration of the assets is 2 years and that of its habilities is 3 years Assume that interest rates are initially 3% Liabilities S millions) Liabilities Fixed rate liabilities S millions) Rate sensitive Asset 50 20 Rate sensitive 50 Fixed rate assets 80 a If the bank manager sells $20m of its fixed rate assets and replaces them with rate sensitive assets. What is the income gap for the bank? b. After event "a" above, What will happen to the income of the ban if interest decreases by 1%? Explain using gap analysis Assume event "a" above didn't happen; If the bank manager sells $30m of its rate sensitive liabilities and replaces them with fixed rate liabilities that resulted in changing the duration from 3 years to 2 year, Also, assume that bank manager sells all its fixed rate assets and replaces them with rate sensitive assest that resulted in increasing the duration from 3 years to 4 c. years. what will happen to the interest rate risk? Explain using gap analysis d. If interest increases from 3% to 4% calculate calculate the change in the market value of the net worth as a percentage of total assets. Comment generaly on the changes that were initiated by the bank manager in a and"c above? e