1.The following are a bank's interest-sensitive assets and interest-sensitive liabilities on its balance sheet and the rate sensitivity index:

Interest-sensitive Assets Rate Sensitivity Index

Variable rate loans $6,000,0001.60

Short term securities3,000,0001.40

Federal funds sold1,000,000 1.00

Interest-sensitive Liabilities Rate Sensitivity Index

Time deposits maturing in 12 months$5,000,0000.60

Savings deposits2,000,0000.50

Other interest-bearing deposits500,000 0.80

(a)Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (22 points)

(b)Interest rate fall by 0.75 percent (thee-quarter of a percent).Using weighted balance sheet adjusted for the rate-sensitivity index, calculate the increase or decrease in bank's net interest income resulting from the decline in rates. (3 points)

(c)If the bank's total assets are $11,750,000, calculate the interest sensitive ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index.(5 points)