1. The following are a banks interest-sensitive assets and interest-sensitive liabilities on its balance sheet and the rate sensitivity index:

Interest-sensitive Assets Rate Sensitivity Index

Variable rate loans $6,000,000 1.60

Short term securities 3,000,000 1.40

Federal funds sold 1,000,000 1.00

Interest-sensitive Liabilities Rate Sensitivity Index

Time deposits maturing in 12 months $5,000,000 0.60

Savings deposits 2,000,000 0.50

Other interest-bearing deposits 500,000 0.80

1. Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (22 points)

2. Interest rate fall by 0.75 percent (thee-quarter of a percent). Using weighted balance sheet adjusted for the rate-sensitivity index, calculate the increase or decrease in banks net interest income resulting from the decline in rates. (3 points)

3. If the banks total assets are $11,750,000, calculate the interest sensitive ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index. (5 points)