using the 17 5 million gap calculated using equation 1 what is the change in income 638335

1. Using the –$17.5 million gap calculated using Equation 1, what is the change in income if interest rates rise by 1%?

2. The manager of First National Bank notices that the bank balance sheet allows him to put assets and liabilities into more refined maturity buckets that allow him to estimate the potential change in income over the next one to two years. Rate sensitive assets in this period consist of $5 million of securities maturing in one to two years, $10 million of commercial loans maturing in one to two years, and an additional $2 million (20% of fixedrate mortgages) that the bank expects to be repaid. Rate sensitive liabilities in this period consist of $5 million of one to two year CDs, $5 million of one to two year borrowings, $1.5 million of checkable deposits (the 10% of checkable deposits that the bank manager estimates are rate sensitive in this period), and an additional $3 million of savings deposits (the 20% estimate of savings deposits). For the next one to two years, calculate the gap and the change in income if interest rates rise by 1%.