Consider the following balance sheet for WatchoverU Savings Inc. (in millions):

a. What is WatchoverU’s expected net interest income for the year?

b. What will expected net interest income be at year-end if interest rates rise today by 2 percent?

c. Using the cumulative repricing gap model, what is the expected net interest income for a 2 percent increase in interest rates?

d. What will expected net interest income be if interest rates on RSAs increase by 2 percent but interest rates on RSLs increase by 1 percent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why?

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