4. The managers of Clear Creek Bank asks for a performance/risk analysis, and asks you to answer the following questions.

Clear Creek Banks balance sheet is as follows:

Assets: Ave. Duration

Securities 4% rate $ 100 million 1 year

Long-term Loans 8% rate $ 500 million 8 years

Total Assets $ 600 million

Liabilities & Equity

Short-term Deposits 1% rate $ 440 million 1 year

Certificates of Deposit 4% rate 100 million 3 years

Total Liabilities $540 million

Equity 60 million

Total Liab.& Equity $600 million

d. Using this equity multiplier, what is the banks Operating ROE?

(hint OROE = OROA x EM) Operating ROE _______________

1. What is the banks 1-year income (funding) gap (Rate Sensitive Assets (RSA) for 1 year Rate Sensitive Liabilities (RSL) for 1 year? Funding Gap ____________

2. Based on this funding gap if rates go up by 1%, what is the expected change in the banks NII $? [Hint: Change NII $ = Funding Gap x Change Rate]

Expected Change in NII _______________

g. What is the Banks Duration gap (D-Gap)?

D-GAP = Duration of Assets {[Total Liabs./Total Assets] x Duration Liabs.}

Hint: Duration of Assets = Sum {[Each type of asset / Total Assets] x its Duration}

Duration of Liabilities = Sum {[Each type of Liability / Total Liabs.] x its Duration}

Duration of Assets __________

Duration of Liabilities ______________ Duration Gap _____________

h. What is the expected % change in the value of equity with a rise in rates of 1%? Expected Change in Value of Equity = - D-GAP x {[(Chg rate / (1+ Ave loan rate)]

***(Use 8% as the average loan rate).

Expected % Chg in the Value of the Banks Equity ___________