Problem 1 Consider the following two banks: - Bank A has assets composed solely of a 14-year, zero-coupon bond with a current value of $1,000,000 and a maturity value of $1,800,000. It is financed by a 12-year, 9% coupon, $1,000,000 face value bond to yield 9.5% return. - Bank B has assets composed solely of a 14-year, 10% coupon, $1.7 million bond with a 11% yield to maturity. It is nanced with a 16-year, zero-coupon bond with a current value of $1,500,000 and a maturity value of $3,100,000. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero- coupon bond has semi-annual compounding period. Suppose that interest rates are expected to rise by 0.75% (75 basis points). a) How do the values of the assets and liabilities of each bank change with changes in the interest rate? Problem 2 Consider the following two banks: - Bank 1 has assets composed solely of a 12-year, 12% coupon, $1 million bond with a 12% yield to maturity. It is nanced with a 12-year, 10% coupon, $1million bond with a 10 % YTM. - Bank 2 has assets composed solely of a 9-year, 12%, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed by a 12-year, 8.275%coupon, $1,000,000 face value bond with a yield to maturity of 10%. All securities, accept the zero-coupon bond, pay interest semi-annually and the zero- coupon bond has semi-annual compounding period. a) If interest rates rise by 1% (or 100 bps). How do the values of the assets and liabilities of each bank change