The Homestead Bank has the following questions it would like to ask you about its bank.The bank's balance sheet is as follows:

Assets:Ave. Duration

Treasury Bills1.2% rate$ 300 million1 year

Long-term Loans 6% rate$ 500 million6 years

Total Assets$ 800 million

Liabilities & Equity

Short-term Deposits 1% rate$400 million1 year

Certificates of Deposit3% rate200 million3 year

Total Liabilities$600 million

Equity200million

Total Liab.& Equity$800million

a.What is the bank's expected net interest income $ (NII) and expected net interest margin (NIM)?[Hint: NII = Sum (Each asset x its rate) - Sum (Each liability x its rate)]

and NIM = NII / Earning Total Assets (excludes cash)

NII ($'s) ____________NIM % ______________

b.If the bank has the NIM % that you calculated above, a PLL% of 0.50%, and a Burden % of 1.00%, what is the bank's operating ROA before taxes (NIM - Burden% - PLL%)? Operating ROA (OROA) _______________

c.What is the equity multiplier (EM) for the bank?(hint EM = total assets/equity)

EM ______________

d.Using this equity multiplier, what is the bank's Operating ROE?

(hint ROE = OROA x EM)Operating ROE _______________

e.What is the bank's 1-year income (funding) gap (Rate Sensitive Assets (RSA) for 1 year - Rate Sensitive Liabilities (RSL) for 1 year?Funding Gap ____________

f. Given this funding gap if rates go up by 1%, what is the expected change in the bank's NII $?[Hint:Change NII $ = Funding Gap x Change Rate]

Expected Change in NII _______________

g. What is the Bank's Duration gap (D-Gap)?

D-GAP = Duration of Assets - {[Total Liabs./Total Assets] x Duration Liabs.}

Hint: Duration of Assets = Sum {[Each type of asset / Total Assets] x its Duration}

Duration of Liabilities = Sum {[Each type of Liability / Total Liabs.] x its Duration}

Duration of Assets __________

Duration of Liabilities ______________Duration Gap _____________

h. What is the expected % change in the value of equity with a rise in rates of 1%?Expected Change in Value of Equity = - D-GAP x {[(Chg rate / (1+ Ave loan rate)] ***(Use 6% as the average loan rate).

Expected % Chg in the Value of the Bank's Equity ___________