A bank has the following balance sheet:

Assets Avg. Rate Liabilities/Equity Avg. Rate

Rate sensitive $750,000 7.75% Rate sensitive $675,000 6.25%

Fixed rate 955,000 8.75 Fixed rate 805,000 7.50

Nonearning 365,000 Nonpaying 590,000

Total $2,070,000 Total $2,070,000

Suppose interest rates fall such that the average yield on rate-sensitive assets decreases by 15 basis points and the average yield on rate-sensitive liabilities decreases by 5 basis points.

a) Calculate the banks repricing GAP (CGAP), gap to total assets and gap ratio.

b) Assuming the bank does not change the composition of its balance sheet, calculate the resulting change in the banks interest income, interest expense, and net interest income.

c) Explain how the CGAP and spread effects influenced this change in net interest income.

A bank has the following balance sheet:

Assets Avg. Rate Liabilities/Equity Avg. Rate

Rate sensitive $750,000 7.75% Rate sensitive $875,000 6.25%

Fixed rate 955,000 8.75 Fixed rate 805,000 7.50

Nonearning 365,000 Nonpaying 390,000

Total $2,070,000 Total $2,070,000

Suppose interest rates rise such that the average yield on rate-sensitive assets increases by 45 basis points

and the average yield on rate-sensitive liabilities increases by 35 basis points.

a) Calculate the banks repricing GAP, gap to total assets ratio and gap ratio.

b) Assuming the bank does not change the composition of its balance sheet, calculate the

resulting change in the banks interest income, interest expense, and net interest income.

c) Explain how the CGAP and spread effects influenced the change in net interest income.