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Calculate Net Interest Income Of Bank Based On Increase In Basis Points And Maturity Gap Repricing

Question

The following is the balance sheet of Boston Bank. The average maturity of demand deposits is estimated at 2 years.

 

Face Value

Runoff

< 1 year

 

Face Value

Runoff

< 1 year

3-mo. T-Bills

$60m

 

Demand Dep.

$180m

10 percent

2-yr Bonds

$60m

5 percent

Equity

$20m

 

5-yr Bonds

$80m

10 percent

 

 

 


 
1. What is the repricing gap if a 0 to 3 month maturity gap is used? Ignore runoffs.
    a. $60 million.
    b. $40 million.
    c. –$80 million.
    d. –$120 million.
    e. –$180 million.

2. What is the repricing gap if a 3-year maturity gap is used? Ignore runoffs.
    a. $21 million.
    b. $44 million.
    c. –$80 million.
    d. –$60 million.
    e. –$120 million.

3. What is the repricing gap if a 1-year maturity gap is used if runoffs are also considered?
    a. –22 million.
    b. +$22 million.
    c. +$53 million.
    d. –$40 million.
    e. –$70 million.

4. What is the impact on net interest income in year two if interest rates increase by 50 basis points at the end of year one? Ignore runoffs.
    a. +$0.210 million.
    b. +$0.300 million.
    c. –$0.300 million.
    d. –$0.210 million.
    e. +$0.600 million.

Summary

This question belongs to Finance and it is about calculation of repricing maturity gap for 0-3 months, 3 years, 1 year and the impact on net interest income for the bank. These have been calculated in the solution in detail.

Total Word Count 173

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