Consider the following balance sheet for Watchover Savings Inc. (in millions): (LG 23-1)

Assets Liabilities and Equity Floating-rate mortgages

(currently 10% p.a.) $ 60 NOW deposits

(currently 6% p.a.) $105 30-year fixed-rate loans

(currently 7% p.a.) 90 5-year time deposits

(currently 6% p.a.) 25 ____ Equity 20 Total $150 Total $150

a. What is Watchover’s expected net interest income at year-end?

b. What will be the net interest income 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?

AppendixLO1