Question

Consider the following balance sheet positions for a financial institution.

Rate-sensitive assets = $200 million. Rate-sensitive liabilities = $100 million

a) Calculate the repricing gap and the impact on net interest income of a 2 percent increase in interest rates.

b) Calculate the impact on net interest income assuming a 2 percent decrease in interest rates.

c) What conclusion can you draw about the repricing model from these results?

d) Explain reinvestment risk.