Suppose that your bank buys a T-bill yielding 2 percent that matures in six months and finances the purchase with a three-month time deposit paying 3 percent. The purchase price of the T-bill is $5 million financed with a $5 million deposit.

a) Calculate the six-month GAP associated with this transaction. What does this GAP measure indicate about interest rate risk in this transaction?

b)Calculate the three-month GAP associated with this transaction. Is this a better GAP

measure of the banks risk? Why or why not?