Question

Bank 7 Yield Rate Sensative Fixed Rate Non Earning Assets 600 250 Uabilities Rate 600 220 1156 150 Equity Total 1000 1000 32. Calculate the Gap 33. Calculate Net interest income 34. Calculate Net Interest Margin 35. Recalculate Net Interest Income and Net Interest margin when interest rates increase by 1% 36. Calculate a the Duration and Modified Duration of the following Bond Current Price $1,026.24 Face Value 1000 Coupon Rate 8% Maturity 3 years Annual Bond 37. if Interest rates increase by 1 %, what will be the percentage change in the Bond's price?

Answer 1

Answer to first 4 questions:

32) Interest rate gap = total interest-sensitive assets - total interest-sensitive liabilities

= 600 – 600

= 0

33) Net Interest Income = Interest Income from Assets – Interest Expense on Liabilities

	Assets	Yield	Income	Liabilities	Interest Rate	Expenses	Net Interest Income
Rate Sensitive	600	8%	48	600	4%	24
Fixed Earning	250	11%	27.5	220	6%	13.2
Total			75.5			37.2	38.3

= 75.5 – 37.2

=38.3

34) Net Interest Margin = Net Interest Income/Interest Earning Assets%

=38.6/(600+250)

= 4.51%

35) When Interest Rate increases by 1%

	Assets	Yield	Income	Liabilities	Interest Rate	Expenses	Net Interest Income
Rate Sensitive	600	8%	48	600	5%	30
Fixed Earning	250	11%	27.5	220	7%	15.4
Total			75.5			45.4	30.1

Net Interest Income = 30.1

Net interest margin = 30.1/850 = 3.54%