Consider the following balance sheet for X Savings (in millions).
Floating rate mortgages $ 40
(Currently 9% annuall7)
30-year fixed rate loans
(Currently 6% annuall7) 40
Total Assets 80
Liabilities and Equity
1-year time deposits
(currently 5% annually) $ 50
3-year time deposits
(Currently 7% annually) 20
Total liabilities and equity 80
a. What Is Xâ€™s expected net interest income at year end ?
b. What will net interest income be if interest rates rise by 1 percent ?
c. Using the cumulative repricing gap model, what is the expected net interest income for a 1 percent increase in interest rates ?
d. What will net interest income be at year end if interest rates on rate sensitive assets increase by 1% but interest rates on rate sensitive liabilities increase by 0.5% ?