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Consider the following balance sheet for WatchoverU Savings, Inc. (in millions): Assets Liabilities and Equity Floating-rate mortgages (currently 10% annually) | $50 30-year fixed-rate loans
Consider the following balance sheet for WatchoverU Savings, Inc. (in millions): Assets Liabilities and Equity Floating-rate mortgages (currently 10% annually) | $50 30-year fixed-rate loans (currently 7% annually) | $50 1-year time deposits | (currently 6% annually) | $70 3-year time deposits | (currently 7% annually) | $20 $10 $100 Total liabilities &equity $100 Equity Total assets 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 percent? c. Using the cumulative repricing gap model, what is the expected net interest income for a 2 percent increase in interest rates? d. What will net interest income be at year-end if interest rates on RSAs increase by 2 percent but interest rates on RSLs increase by 1 percent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why
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