Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr...

Consider a bank with the following balance sheet (M means million):

Required

ONLY ANSWER SUBSECTION D

a) Calculate the equity (total asset – total liability) to asset ratio of the bank

b) Calculate the duration and convexity of the both asset and liability sides;

c) If the interest rates go up by 1%, using
the duration and convexity rule
to determine the net worth of the bank and the equity to asset ratio;

D) In c)’s scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise?