(b) Consider the following balance sheet of Fairview Bank: Duration () 1900 Duration 8.3 () 3700 1.1 1500 7.1 4200 3.2 Assets Variable-rate mortgages Fixed-rate mortgages Commercial loans Physical capital Liabilities Money market deposits Savings deposits Variable-rate CDs Equity 6500 5.0 2200 1.5 2900 2700 Total 12800 Total 12800 What will be the change in net interest income at the year-end if interest rates decrease by 0.5 per cent, from 4 to 3.5 per cent? Explain using basic gap analysis. (Use the following assumptions for runoff cash flows: fixed-rate mortgages repaid during the year: 15 per cent; proportion of savings deposits and variable-rate CDs that are rate-sensitive: 15 per cent). (7 marks) (c) Calculate the duration gap for Fairview Bank? Explain why a bank will normally have a duration gap greater than zero. (6 marks) (b) Consider the following balance sheet of Fairview Bank: Duration () 1900 Duration 8.3 () 3700 1.1 1500 7.1 4200 3.2 Assets Variable-rate mortgages Fixed-rate mortgages Commercial loans Physical capital Liabilities Money market deposits Savings deposits Variable-rate CDs Equity 6500 5.0 2200 1.5 2900 2700 Total 12800 Total 12800 What will be the change in net interest income at the year-end if interest rates decrease by 0.5 per cent, from 4 to 3.5 per cent? Explain using basic gap analysis. (Use the following assumptions for runoff cash flows: fixed-rate mortgages repaid during the year: 15 per cent; proportion of savings deposits and variable-rate CDs that are rate-sensitive: 15 per cent). (7 marks) (c) Calculate the duration gap for Fairview Bank? Explain why a bank will normally have a duration gap greater than zero. (6 marks)