Your employer has asked you to examine the interest-rate risk of your bank relative to your direct competition. Management is concerned that interest rates will fall by the end of the year and wants to see what would happen to the relative profitability of the firm if the decline actually occurs.

Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates.

Question:Using the net worth formula, if interest rates rise by 3%, what will be the expected change in the market value of net worth for:

1. a.)Your firm?
2. b.)Your competition?