Consider the following balance sheet for WatchoverU Savings Inc. (in millions):

ASSETS:

1) Floating-rate Mortgages (currently at 10%): $50

2) 30 yr fixed-rate loans (currently at 7%): $50

TOTAL $100

Liabilities and Equity:

1) 1 yr time deposits (currently at 6%): $70

2) 3 yr time deposits (currently at 7%): $20

Equity: $10

TOTAL: $100

a)What is WatchoverUs expected net interest income (for year 2) at year-end?

b)What will expected net interest income (for year 2) be at year-end if interest rates rise 2 percent?

c)Using the cumulative repricing gap model, what is the expected net interest income (for year 2) for a 2 percent increase in interest rates?

d)What will expected net interest income (for year 2) 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?

And is there a BA II Plus calculator solution?