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 $2,500,000 1.40

Federal funds sold 1,000,000 1.00

Investment in securities 1,500,000 1.30

Leases 4,000,000 1.10

Interest-sensitive Liabilities Rate Sensitivity Index

CDs maturing in 3 months $3,500,000 0.70

Money market deposits 5,000,000 0.80

Other short-term deposits 6,000,000 0.90

Savings deposits 500,000 0.60

1. Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (17 points)

1. Interest rate decline by 0.50 percent (one-half 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)

(c) If the banks total assets are $18,000,000, calculate the interest sensitive ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index. (5 points)