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

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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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