Answer at least one question and no more than two further questions from this section 5. Consider the following balance sheet of Bank Alaska: Assets ($) Duration (years) 600 9.5 250 4.2 Variable rate mortgages Fixed rate mortgages Commercial loans Physical assets Total 500 4.5 100 1450 Liabilities ($) Duration (years) Money market deposits 400 0.8 600 2.7 Savings deposits Variable rate CDs 100 0.9 350 Equity Total 1450 Assumptions = 20%. Fixed rate mortgages repaid in the coming year Savings deposits that become rate sensitive in the coming year = 15%. All commercial loans are rate sensitive. All money market deposits are rate sensitive. ale mortgages repaid in the coming year = 20%. Savings deposits that become rate sensitive in the coming year = 15%. All commercial loans are rate sensitive. All money market deposits are rate sensitive. (a) Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 3% to 4%. (6 marks) (b) Explain runoff cash flows in the context of income gap analysis. (3 marks) (c) If Bank Alaska predicts interest rates may fall, how can the bank adjust its portfolio of assets and liabilities in order to reduce its loss of income? (5 marks) (4 marks) (d) What is the duration gap for Bank Alaska? (e) What is the estimated change in the value of equity (in $) for Bank Alaska if interest rates increase by 1% from 3% to 4%? (3 marks) (f) Explain why the change calculated in part (e) is an estimate. I (4 marks) Answer at least one question and no more than two further questions from this section 5. Consider the following balance sheet of Bank Alaska: Assets ($) Duration (years) 600 9.5 250 4.2 Variable rate mortgages Fixed rate mortgages Commercial loans Physical assets Total 500 4.5 100 1450 Liabilities ($) Duration (years) Money market deposits 400 0.8 600 2.7 Savings deposits Variable rate CDs 100 0.9 350 Equity Total 1450 Assumptions = 20%. Fixed rate mortgages repaid in the coming year Savings deposits that become rate sensitive in the coming year = 15%. All commercial loans are rate sensitive. All money market deposits are rate sensitive. ale mortgages repaid in the coming year = 20%. Savings deposits that become rate sensitive in the coming year = 15%. All commercial loans are rate sensitive. All money market deposits are rate sensitive. (a) Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 3% to 4%. (6 marks) (b) Explain runoff cash flows in the context of income gap analysis. (3 marks) (c) If Bank Alaska predicts interest rates may fall, how can the bank adjust its portfolio of assets and liabilities in order to reduce its loss of income? (5 marks) (4 marks) (d) What is the duration gap for Bank Alaska? (e) What is the estimated change in the value of equity (in $) for Bank Alaska if interest rates increase by 1% from 3% to 4%? (3 marks) (f) Explain why the change calculated in part (e) is an estimate. I (4 marks)