Consider the following bank balance sheet and the associated average interest rates. The time frame for rate sensitivity is one year.

Assets

Rate sensitive

Fixed rate Non-earing

Total 5.200

Amount S3,000

1,400 800

Rate 7.3% 8.7%

Liabilities & Equity Rate sensitive

Fixed rate

Nonpaying Total

Amount

Rate $2,90

0 3.8% 1,650 6.1% 650

a) Calculate the bank's GAP, expected net income, and net interest margin if rates and portfolio composition remain constant during the year.

(6 Marks) b) This bank is positioned to profit ifinterest rates move in which direction? Why? (2 Marks) c) Calculate the change in the expected net interest income and NIM ifthe entire yield curve shifts 2% higher during the year. Is this consistentwith the bank's static GAP? (7 Marks) d) Suppose instead of the parallel shift in the yield curve in part (il) interest rates increase unevenly. Specifically, suppose hte asset yields increase by I percent while liabilities rise by 1.75 percent. Calculate the change in net interest income and NIM. Is this uneven shift ni (3 Marks) rates more or less likely than a parallel shift in rates? Why?