**Answer:**

**Answer: **Annual Profit for Bank = $1000000

if all interest rates were to rise by 1 percent? there shall be no effect on Profits.

**Explanation:**

The bank faces the risk that the short-term interest rate will increase (Rise) before the second year, this will increase the amount of interest the bank has to pay on the CD but there will be no changes in the interest income that the bank receives from the Treasury.

2.

Annual income of bank = Annual interest on Treasury note = $50000000 * 4% = $2000000

Annual expense of bank = Annual interest on CD= $50000000 * 2% = $1000000

Annual Profit for Bank = $2000000 - $1000000 = $1000000

3. If all interest rate rises by 1% then:

Annual income of bank = Annual interest on Treasury note = $50000000 * 5% = $2500000

Annual expense of bank = Annual interest on CD= $50000000 * 3% = $1500000

Annual Profit for Bank = $2500000 - $1500000 = $1000000

Hence, there shall be no effect on Profits.