A)What is the amount of RSA, RSL and the income gap amount?B) Calculate the duration gap.C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show workD) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work. Interest Risk/Gap/Duration AnalysisUse the balance sheet of a bank below to answer the following.AssetsRequired ReservesExcess ReservesT-bills8 m7 m65 mLiabilities10 mMoney Market Deposits 50 m3-year CDs40 mCapitalMortgages 30-yearCommercial Loans 5-year 10 mThe duration of asset is 1.8 years, the duration of liabilities 2 years.10 m

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Description: A)What is the amount of RSA, RSL and the income gap amount?B) Calculate the duration gap.C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show workD) What happens when the interest rises by

A) RSA (Rate Sensitive Assets) = Required Reserves + Excess Reserves + T-bills + Mortgages +…

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A)What is the amount of RSA, RSL and the income gap amount? B) Calculate the duration gap. C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show work D) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work

A)What is the amount of RSA, RSL and the income gap amount? B) Calculate the duration gap. C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show work D) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 2EP

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Assume a bank has the following balance sheet. Determine the 2-year GAP. AssetAmount LiabilityAmountCash$100 90-day CDs$1006-month Gbonds$400 360-day CDs$200 2-yearcommercialloans$400 Time Deposits 2- year $900 5-year fixedrate loans$500 Stockholder’s equity$200 Total$1,400 Total$1,400 GAP = (RSA2 yr – RSL2 yr) 0 -$100 -$200 -$300 -$800
Consider the following Balance Sheet for Forward Thinking Commercial Bank(FTCB) (in millions) ASSETS LIABILITIES Floating rate mortgages 250 Demand deposits 300 (currently 14% annually) (currently 5% annually) 30 years fixed rate loans 1 year CD 50 (currently 9% annually) 120 (currently 8% annually) Equity 20 370 370 a. What is FTCB expected net interest income (NII) at year end? b. What is FTCB expected net interest income at year end if interest rates fell by seven percent (7%). c. What is FTCB expected net interest income at year end if interest rates grew by 300 basis points on assets, but decline by 2% on liabilities.
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