Bank 1 has assets composed solely of a 10-year, 12% coupon, $1 million loan with a 12% YTM. It is financed with a 10-year, 10% coupon, $1 million CD with a 10% YTM.
Bank 2 has assets composed solely of a 7-year, 12% yield, zero-coupon bond with a current value of $894,006.2 and a maturity value of $1,976,362.88. It is financed by a 10-year, 8.275% coupon, $1 million face value CD with a 10% YTM.
If interest rate rises by 1%, how do the values of assets and liabilities of EACH bank change?
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