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

Loans $5,000,000 1.30

Federal funds sold 1,000,000 1.00

Investment in securities 2,500,000 1.10

Leases 2,000,000 1.20

Interest-sensitive Liabilities Rate Sensitivity Index

Money market deposits $4,000,000 0.80

Other short-term deposits 1,500,000 0.90

CDs maturing in 9 months 3,000,000 0.90

Federal funds purchased 150,000 1.00

1. Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (18 points)
2. Interest rate decline by 0.25 percent (one-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 $15,000,000, calculate the IS ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index. (4 points)