You are given the following information about a Bank:

Assets duration (average) = 2.695 years

Liabilities duration (average) = 1.03 years

Assets = $100 million

Bank capital = $15 million

Interest rates are 10%

Question 1

What will happen to the bank's net worth ($ amount) if interest rates rise by 10 percentage points? What will happen to bank capital? Will the bank stay in business? Why or why not?

Question 2

How should the bank alter the duration of its assets to immunize its net worth from interest-rate risk?