Maturity for long-term consumer loans and passbook savings are over 10 years. Suppose that interest rates rise by 4 percent on one-year RSAs (rate sensitive assets) but 2 percent on one-year RSLs (rate sensitive liabilities). The expected annual change in net interest income of the bank is:

Select one:

a. Unable to answer this question as the interest rate change must be identical on RSAs and RSLs with the same repricing maturity.

b. $0.6 million

c. $21.8 million

d. $3.6 million

e. $11.4 million

The balance sheet of XYZ Bank appears below. All figures in millions of U.S. dollars. Assets Liabilities 1 Short-term consumer $ 150 1 Equity capital (fixed) $ 120 loans (one-year maturity) 2 Long-term consumer 125 2 Demand deposits 40 loans (two-year maturity) 3 Three-month Treasury 1303 Passbook savings 130 bills 4 Six-month Treasury notes 1354 Three-month CDs 140 5 Three-year Treasury bond 1705 Three-month bankers 120 acceptances 6 10-year, fixed-rate 1206 Six-month 160 mortgages commercial paper 730-year, floating-rate 1407 One-year time 120 mortgages (rate adjusted deposits every nine months) 8 Two-year time 40 deposits $970 $970