Consider the following balance sheet for WatchoverU Bank (in millions):

Assets

$

Liabilities and equity

$

Floating-rate mortgages (currently 10% annually)

12%

50

1-year term deposits (currently 6% annually)

8%

70

30-year fixed-rate loans (currently 7% annually)

50

3-year term deposits (currently 7% annually)

20

Equity

10

Total assets

100

Total liabilities and equity

100

(a)What is WatchoverU's expected net interest income at year-end?

(b)What will net interest income be at year-end if interest rates rise by 2 per cent?

(c) Using the cumulative repricing gap model, what is the expected net interest income for a 2 per cent increase in interest rates (maturity bucket = 1 year)?

(d)What will net interest income be at year-end if interest rates on RSAs increase by 2 per cent but interest rates on RSLs increase by 1 per cent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why?