1.Consider the following balance sheet for WatchoverU Bank:

What is WatchoverU’s expected net interest income at year-end?
What will net interest income be at year-end if interest rates rise by 2 per cent?
Using the cumulative repricing gap model, what is the expected net interest income for a 2 per cent increase in interest rates?
What will net interest income be at year-end if interest rates on RSAs increase by 2 per cent but interest rates on RSLs increase by 1 per cent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why? LO 5.3, 5.4

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Assets Floating-rate mortgages (currently 10% annually) 30-year fixed-rate loans (currently 7% annually) $m Liabilities and equity Total assets $m 50 1-year term deposits (currently 6% annually) 70 50 3-year term deposits (currently 7% annually) 20 Equity 10 100 Total liabilities and equity 100