Consider the following balance sheet for Watchovia Bank (in millions): (LG 22-1) Assets Liabilities and Equity Floating-rate
Question:
Consider the following balance sheet for Watchovia Bank (in millions): (LG 22-1) Assets Liabilities and Equity Floating-rate 1-year time mortgages (currently deposits (currently 10% annually) $ 50 6% annually) $ 70 30-year fixed-rate 3-year time loans (currently deposits (currently 7% annually) 50 7% annually) 20 Equity 10 Total Total assets $100 liabilities & equity $100
a. What is Watchovia's expected net interest income at year-end?
b. What will net interest income be at year-end if interest rates rise by 2 percent?
c. Using the one-year 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?
Step by Step Answer:
Financial Markets And Institutions
ISBN: 9780078034664
5th Edition
Authors: Anthony Saunders, Marcia Cornett