Question: Consider the simple FI Market value balance sheet: (10 Marks) Assets: Liabilities Cash 2000 CD 10000 Bond 12000 Equity 4000 Total 14000 Total 14000 Suppose

Consider the simple FI Market value balance sheet: (10 Marks) Assets: Liabilities Cash 2000 CD 10000 Bond 12000 Equity 4000 Total 14000 Total 14000 Suppose that market interest rates increase by 1.5%. It is a 10 year bond issued two years ago at par value of 12000 and a coupon rate of 10% paid semiannually. CD pays semi-annual interest rate of 8%. Calculate NII before the change? Market value of equity after the change and also market value of equity if interest rates decrease by 2% next year.

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