To earn full credit all your work including the complete formula must be shown, if required. (70
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Question:
To earn full credit all your work including the complete formula must be shown, if required. (70 points)
- 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 1.50
Federal funds sold 500,000 1.00
Investment in securities 3,000,000 1.20
Leases 8,000,000 1.30
Interest-sensitive Liabilities Rate Sensitivity Index
CDs maturing in 3 months $7,000,000 0.40
Money market deposits 10,000,000 0.80
Other short-term deposits 12,000,000 0.70
Interest-bearing deposits 2,000,000 0.90
- Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (20 point)
- 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)
- If the banks total assets are $25,000,000, calculate the Interest sensitive ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index. (5 points)
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