Consider the following balance sheet for WatchoverU Savings, Inc. (in millions): Floating-rate mortgages Liabilities and Equity Assets
Question:
Consider the following balance sheet for WatchoverU Savings, Inc. (in millions): Floating-rate mortgages Liabilities and Equity Assets 1-year time deposits (currently 10% annually) $ 50 (currently 6% annually) $ 70 30-year fixed-rate loans 3-year time deposits (currently 7% annually) 50 (currently 7% annually) Equity 20 10 Total assets $100 Total liabilities and equity $100
a. What is WatchoverU's expected net interest income at year-end?
b. What will net interest income be at year-end if interest rates rise 2 percent?
c. Using the cumulative repricing gap model, what is the expected net inter- est income for a 2 percent increase in interest rates?
d. What will net interest income be at year-end if interest rates on RSAs in- crease 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?
Step by Step Answer:
Financial Institutions Management A Risk Management Approach
ISBN: 9780077211332
6th Edition
Authors: Anthony Saunders, Marcia Cornett