State Bank’s balance sheet  is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. 

a. What is the repricing gap if the planning period is six months? One year?

b. What is State Bank’s duration gap?

c. What is the impact over the next six months on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 35 basis points? Explain the results.

d. What is the impact over the next year on net interest income if interest rates on RSAs decrease (increase) 35 basis points and on RSLs decrease (increase) 50 basis points? Explain the results.

e. Use these duration values to calculate the expected change in the value of the assets and liabilities of State Bank for a predicted decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities.

f. What is the change in equity value forecasted from the duration values for decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities?

g. Use the duration gap model to calculate the change in equity value if the relative change in all market interest rates is a decrease of 50 basis points.

Transcribed Image Text:

Assets Cash Fed funds (1.05%, 0.02) T-bills (5.25%, 0.22) T-bonds (7.50%, 7.55) Consumer loans (6%, 2.50) repriced @ quarter (6.3%, 0.25) Premises and equipment $20 150 300 C&I loans (5.8%, 6.58) 475 Fixed-rate mortgages (7.85%, 19.50) 1,200 Variable-rate mortgages, Total assets 200 900 580 120 $3.945 Liabilities and Equity Demand deposits MMDAs (2.5%, 0.50) $250 (no minimum balance requirement) 360 CDs (4.3%, 0.48) 715 CDs (6%, 4.45) Fed funds (1%, 0.02) Commercial paper (3%, 0.45) Subordinated debt: Fixed-rate (7.25%, 6.65) Total liabilities Equity Total liabilities and equity 1,105 515 400 200 $3,545 400 $3.945