Question
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
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?
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