Your bank has 50 percent of its loans priced off the current prime rate at prime plus 1 percent, on average. The majority of the bank's liabilities are interest-bearing core deposits (NOWs, MMDAs, and small time deposits).

If the prime rate immediately rises from 6 percent to 6.5 percent. Will management likely increase deposit rates by 0.50 percent immediately? What will be the impact on the bank's spread?

Also, If the prime rate immediately falls from 6 percent to 5.5 percent. Will management likely decrease deposit rates by 0.50 percent immediately? What will be the impact on the bank's spread? m