The balance sheet of A. G. Fredwards, a government security dealer, is listed below. Market yields are in parentheses, and amounts are in millions. Assets Liabilities and Equity Cash $ 20 Overnight repos $340 1-month T-bills (7.05%) 150 Subordinated debt 3-month T-bills (7.25%) 150 7-year fixed rate (8.55%) 300 2-year T-notes (7.50%) 100 8-year T-notes (8.96%) 200 5-year munis (floating rate) (8.20% reset every 6 months) 50 $670 Equity Total liabilities and equity 30 $670 Total assets

a. What is the repricing gap if the planning period is 30 days? 3 months? 2 years?

b. What is the impact over the next three months on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 60 basis points?

c. What is the impact over the next two years on net interest income if interest rates on RSAs increase 50 basis points and on RSLS increase 75 basis points?

d. Explain the difference in your answers to parts

(b) and (c). Why is one answer a negative change in NII, while the other is positive?

LO.1