Assets (in Million $)

Cash$40

One-year mortgages (currently 10% annually): $100(duration: 1 year)

5-year fixed-rate loans (7% annually): $360 (duration: 6.2 years)

Liabilities and Equity (in Million $)

1-year term deposits (currently 6% annually): $160 (duration: 1 year)

3-year term fixed-rate deposits (7% annually): $300 (duration: 2.7 years)

Equity: $40

Required:

a. What will ABC Bank's net interest income be at the end of the first year?

b. What will net interest income be at the end of the second year if interest rates rise by 2 per cent?

c. Using the repricing gap model, what will ABC Bank's net interest income be for a 2 percent increase in interest rates (maturity bucket = 1 year)?