The following is City Bank T account.

Assets

Liabilities and Capital

Reserves

$$20m$

RSL $$90$

RSA

$$80m$

Capital

$$10$

a$.$ Using Gap analysis, calculate the change of income if interest rates changed from $10\%$ to

$15\%$

b$.$ Using Gap analysis calculate the change in the market value of the net worth as a

percentage of total assets if interest rates increased from $10\%$ to $15\%.$ Assume average

duration of $4$ years for the rate sensitive assets, and average duration of $6$ years for the

rate sensitive liabilities.

c$.$ Referring to $"$b$"$ above, what is the market value of the net worth as a percentage of total

assets if interest rates decreased from $15\%$ to $13\%?$

d$.$ What strategies should the Bank Manager follow to alleviate the risk of interest rates

increase?