Suppose that ABC bank and DEF bank have the following assets and liabilities:

ABC bank

Assets

$200 million five-year floating-rate bonds (Libor + 7%) (Interest rate is adjusted annually)

Liabilities

$200 million five-year fixed-rate CDs (9%)

DEF bank

Assets

$200 million five-year fixed-rate loans (16%)

Liabilities

$200 million five-year floating-rate CDs (Libor + 5%) (Interest rate is adjusted annually

f. Assume Libor rate is 3% for the first year and 4% for the second year, calculate net interest income for both banks without and with the swap at the end of the first and second year (10 marks)