a. Calculate the banks DGAP.

b. Specifically what does this DGAP mean to the bank?

c. Provide two asset transactions and two liability transactions which would reduce the absolute

value of the DGAP,

d. If rates increase by 2%, what will be the approximate change in the banks market value of

equity position? Explain

SMU-MBA Bank Assets $ ValueRate ECR Duration Cash 6 month base loans 3 year fixed rate loans Total Assets 900 1,150 7.00% 100% 2,300 8.50% 4,350 95% Liabilities Demand deposits MMDA 1 year large CD's Total Liabilities Equity Total Liab. and Equity 2,000 1,150 2.50% 25% 45% 850 4.50% 4,000 350 4,350