Alicia is interested in purchasing a set of ear buds to use with her laptop and smartphone. She visits Best Buy and notices that the prices vary from $10 to several hundred dollars. Alicia prefers wireless ear buds and compares the Skullcandy model that costs $90 to a similar pair from Beats by Dre that cost $119. She decides to purchase the Beats brand because she believes it's a higher quality set. In this case, Alicia has been influenced by the effect of price.

Variable rate cd’s = $90 treasury bills = $150 discount loans = $20 treasury notes = $100 fixed rate cds = $160 money market deposit accts. = $140 savings deposits = $90 fed funds borrowing = $40 variable rate mortgage loans $140 demand deposits = $40 primary reserves = $50 fixed rate loans = $210 fed funds lending = $50 equity capital = $120 a. develop a balance sheet from the above data. be sure to divide your balance sheet into rate-sensitive assets and liabilities as we did in class and in the examples. b. perform a standard gap analysis and a duration analysis using the above data if you have a 1.15% decrease in interest rates and an average duration of assets of 5.4 years and an average duration of liabilities of 3.8 years. c. indicate if this bank will remain solvent after the valuation changes. if so, indicate the new level of equity capital after the valuation changes. if not, indicate the amount of the shortage in equity capital.