1. Consider the following balance sheet of Robobank:

Assets () Duration Liabilities () Duration

Variable-rate Money market

mortgages 1300 8.1 deposits 1000 0.7

Fixed-rate

mortgages 1200 6.1 Savings deposits 3000 2.3

Commercial loans 3000 4.2 Variable-rate CD

1. (>1 year) 1000 2

Physical capital 500 Equity 1000

Total 6000 Total 6000

Make the following assumptions on the runoff of cash flows: fixed-rate mortgages repaid during the year: 10 percent; proportion of savings deposits and variable-rate CD that are rate-sensitive: 20 per cent.

Calculate the impact of an increase in interest rates from 3% to 4% on the net interest income of Robobank. (5 marks)