Question 3

The Balance Sheet of Hedge Row Bancorp (In Millions) is provided below.

Asset	Amount	Liability & Equity	Amount
Cash (Non-Interest Earning)	10.0	Demand Deposit (One-Year Maturity)	70
Short Term Consumer Loan (One-year Maturity)	140	Demand Deposit (Two-year Maturity)	40
Long Term Consumer Loan (Two-Year Maturity)	150	Three-Month Certificate of Deposits (CDs)	140
Three-Month Treasury Bills	145	Three-Month Bankers Acceptances	100
Six-Month Treasury Notes	110	Six-Months Commercial Paper	155
Five-year Treasury Bond	85	One-Year Time Deposit	195
10 Year, Fix Rate Mortgages	120	Two-Year Time Deposits	170
30-Year, floating-Rate Mortgages (Rate Adjusted every nine months)	230	Equity Capital (Fixed)	120
Total Assets	990	Total Liability & Equity	990

1. Calculate the cumulative one-year repricing gap (CGAP) for Hedge Row Bancorp.
2. Based on the answer from a) explain which risk Hedge Row Bancorp would be exposed to.
3. Calculate the Cumulative one-year impact on net interest income of Hedge Row Bancorp of a 1% (125 basis points) increase in interest rates on both rate sensitive assets and rate-sensitive liabilities.
4. The weighted average Duration of the assets of Hedge Row Bancorp is calculated at 3.6 years, while the weighted-average duration of its liabilities is calculated at 2.8 years. The market value of the liabilities equates to the book value. With interest rate expected to rise from 9% to 10%.

1. Calculate the potential impact on the market value of the equity of Hedge Row Bancorp.