Reference no: EM133150875

Question - Consider the following two banks:

Bank 1 has assets composed solely of a 10-year, 11.50 percent coupon, $1.5 million loan with a 11.50 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1.5 million CD with a 10 percent yield to maturity.

Bank 2 has assets composed solely of a 7-year, 11.50 percent, zero-coupon bond with a current value of $1,108,283.85 and a maturity value of $2,374,515.87. It is financed by a 10-year, 5.75 percent coupon, $1,500,000 face value CD with a yield to maturity of 10 percent.

All securities except the zero-coupon bond pay interest annually.

Required - If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and liabilities of each bank?