Using the following data for First Bank:

a)Calculate the banks DGAP.

b)Specifically what does this DGAP mean to the bank?

c)If rates increase by 1%, what will be the approximate change in the banks market value of equity position? Explain.

d)If interest rates increase by 2 or 3 percent over the next six months, how might this effect the banks DGAP position? How might your answer to part c change? In particular, which assets or liabilities, if any, would be affected and how would they be affected?

First Bank Assets $ Value Rate ECR Duration Cash 6 month base loans 1 year fixed rate loans 1,000 1,000 4.50% 100% 3,300 6.50% 5,300 95% Total Assets Liabilities Demand deposits Small Savings 3 year large CD's Total Liabilities 1,100-- 1,350 0.50% 2,290 2.25% 4,740 30% 60% 560 5,300 Equity uitv