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Macquarie University - AFIN 328 Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans

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Macquarie University - AFIN 328

Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans.  These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%.  Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero.  Assume that the bank is subject to a tax rate of 30%.