Use this balance sheet information to answer the following questions:

The bank is considering approving a special loan with the following characteristics:

Loan A: The loan that has 5 years to maturity and has bond-like repayments.

Loan B: The loan has repayments of $145.808 million at the end of year 1, $603.695 million at the end of year 4, and $33.755 million at the end of year 6.

Both loans are trading at par and the yield to maturity is 5.5 percent per annum.

Select the loan that bank should approve. Please provide justification. Assume that both loans have similar default risk.

Assuming a flat yield curve and a parallel shift of the entire yield curve of 150-basis points upward what is the impact on the FIs market value of equity?

\begin{tabular}{|l|r|c|l|c|c|} \hline \multicolumn{5}{|c|}{ Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) } \\ \hline Assets & Amount & Duration & Liabilities & Amount & Duration \\ \hline Cash & 50 & ? & Core Deposits & 750 & 1.25yrs \\ \hline Treasury Bonds & 350 & 2.25yrs & CDs & 300 & 1.00yrs \\ \hline Loans (special) & 650 & ? & Euro CDs & ? & 0.75yrs \\ \hline Loans (fixed) & 750 & 3.75yrs & Equity & 150 & \\ \hline \end{tabular} \begin{tabular}{|l|r|c|l|c|c|} \hline \multicolumn{5}{|c|}{ Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) } \\ \hline Assets & Amount & Duration & Liabilities & Amount & Duration \\ \hline Cash & 50 & ? & Core Deposits & 750 & 1.25yrs \\ \hline Treasury Bonds & 350 & 2.25yrs & CDs & 300 & 1.00yrs \\ \hline Loans (special) & 650 & ? & Euro CDs & ? & 0.75yrs \\ \hline Loans (fixed) & 750 & 3.75yrs & Equity & 150 & \\ \hline \end{tabular}