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

Assets Liabilities and Equity Floating-rate mortgages

(currently 10% annually) $ 50 1-year time deposits

(currently 6% annually) $ 70 30-year fixed-rate loans

(currently 7% annually) 50 3-year time deposits

(currently 7% annually) 20 Equity 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 interest income for a 2 percent increase in interest rates?

d. What will net interest income be at year-end 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?