1 of 3 Course: Principles of Banking Assignment 3 Question 1 (46 Marks) Date: 9 April 2022 Wells Bank has the following financial data for the current year. Assets Wells Bank Duration Liabilities Duration Reserves 6,000,000 0.00 Checkable Deposits 10,000,000 1.6 Securities Money Market Deposits 8,000,000 0.20 2 years Residential Mortgages Variables-rate 10,000,000 6.40 Variables-rate 9,000,000 0.30 2 years Buildings, etc. 12,000,000 2.20 18,000,000 4.60 12,000,000 0.00 2 years Bank Capital Total 6,000,000 3.60 10,000,000 $110,000,000 a. From previous experience, the bank manager of Wells Bank knows that 15% of the fixed-rate residential mortgages are repaid within a year. The bank manager also estimates that 15% of checkable deposits and 20% of savings deposits should be considered rate-sensitive. i. What is the current income GAP for Wells Bank? Shows all the calculations. 7 marks ii. If the bank manager of Wells Bank sells $3 million of its securities with maturities greater than two years and replaces them with securities maturing in less than one year; and revises the estimate of the percentage of fixed-rate mortgages that are repaid within a year from 15% to 25%, what will be the revised income gap for the bank? Shows all the calculations. 7 marks