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Assume a bank has the following balance sheet. Assets Liabilities Equity Govt Bonds (2.5%, 6 months) 300 CDs (1.25%, 3 months) 350 Common Stock =
- Assume a bank has the following balance sheet.
| Assets | Liabilities | Equity | ||
| Govt Bonds (2.5%, 6 months) | 300 | CDs (1.25%, 3 months) | 350 | Common Stock = 20 |
| Loan (8%, 1 year) | 200 | Deposit (2%, 1 year) | 130 | |
| Total Assets | 500 | Total Liabilities + Equity | 500 |
A. What is the 6 month GAP? What is the 1 year GAP?
B. What would be the impact on the one year NII (net interest income if rates are expected to decrease by 2% for all time buckets).
C. If this is the balance sheet of the bank today, what is the current interest spread? Express you answer as a percent.
D. If you were a bank manager seeking to improve the spread of this bank, what would you seek to do?
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