Suppose a bank has $15 billion of one-year loans and $35 billion of ten-year loans. The banks loan portfolio is financed by $10 billion of one-year deposits and $40 billion of ten-year loans. Discuss the impact on the banks net interest income when interest rates decrease by 1% every year for the next three years. Suppose that the parameters in a GARCH model are =0.04, =0.95, and =0.000002. Compute the long-run average volatility. If the current volatility is 1.4% per day, what is your estimate of the volatility in 10, 20, and 30 days? What volatility should be used to price 10-, 20-, and 30-day options? Suppose that there is an event that increases the volatility from 1.4% per day to 2.2% per day. Estimate the effect on the volatility in 10, 20, and 30 days. Estimate by how much the event in part (d) increases the volatilities used to price 10-, 20-, and 30-day options.