Consider the following balance sheet for Watchover Savings Incorporated (in millions): Assets Floating-rate mortgages (currently 10% per annum) 30-year fixed-rate loans (currently 7% per annum) Total Liabilities and Equity $ 60 Now deposits (currently 6% per annum) 90 5-year time deposits (currently 6% per annum) Equity $ 150 Total a. What is Watchover's expected net interest income at year-end? (Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) b. What will be the net interest income at year-end if interest rates rise by 2 percent? (Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) $ 105 25 20 $ 150 c. Using the one-year cumulative repricing gap model, what is the change in the expected net interest income for a 2 percent increase in interest rates? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) Answer is complete but not entirely correct. a. Net interest income $ 4.5 million b. Net interest income S 9.5 million. C. Change in net interest income $ 3.0 million
Consider the following balance sheet for Watchover Savings Incorporated (in millions): Assets Floating-rate mortgages (currently 10% per annum) 30-year fixed-rate loans (currently 7% per annum) Total Liabilities and Equity $ 60 Now deposits (currently 6% per annum) 90 5-year time deposits (currently 6% per annum) Equity $ 150 Total a. What is Watchover's expected net interest income at year-end? (Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) b. What will be the net interest income at year-end if interest rates rise by 2 percent? (Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) $ 105 25 20 $ 150 c. Using the one-year cumulative repricing gap model, what is the change in the expected net interest income for a 2 percent increase in interest rates? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place. (e.g., 32.1)) Answer is complete but not entirely correct. a. Net interest income $ 4.5 million b. Net interest income S 9.5 million. C. Change in net interest income $ 3.0 million
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 14P
Question
![Consider the following balance sheet for Watchover Savings Incorporated (in millions):
Assets
Floating-rate mortgages (currently 10% per annum)
30-year fixed-rate loans (currently 7% per annum)
Total
Liabilities and Equity
$ 60 Now deposits (currently 6% per annum)
90 5-year time deposits (currently 6% per annum)
Equity
$ 150 Total
a. What is Watchover's expected net interest income at year-end? (Enter your answer in millions rounded to 1 decimal place. (e.g.,
32.1))
b. What will be the net interest income at year-end if interest rates rise by 2 percent? (Enter your answer in millions rounded to 1
decimal place. (e.g., 32.1))
$ 105
25
20
$ 150
c. Using the one-year cumulative repricing gap model, what is the change in the expected net interest income for a 2 percent increase
in interest rates? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place.
(e.g., 32.1))
Answer is complete but not entirely correct.
a.
Net interest income
$
4.5
million
b.
Net interest income
S
9.5 million.
C.
Change in net interest income
$
3.0 million](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F63c14279-1589-459a-9dfc-a501372a7d81%2F88e33683-6e0b-411d-ae57-101f760c1131%2Fdgauwqo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the following balance sheet for Watchover Savings Incorporated (in millions):
Assets
Floating-rate mortgages (currently 10% per annum)
30-year fixed-rate loans (currently 7% per annum)
Total
Liabilities and Equity
$ 60 Now deposits (currently 6% per annum)
90 5-year time deposits (currently 6% per annum)
Equity
$ 150 Total
a. What is Watchover's expected net interest income at year-end? (Enter your answer in millions rounded to 1 decimal place. (e.g.,
32.1))
b. What will be the net interest income at year-end if interest rates rise by 2 percent? (Enter your answer in millions rounded to 1
decimal place. (e.g., 32.1))
$ 105
25
20
$ 150
c. Using the one-year cumulative repricing gap model, what is the change in the expected net interest income for a 2 percent increase
in interest rates? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place.
(e.g., 32.1))
Answer is complete but not entirely correct.
a.
Net interest income
$
4.5
million
b.
Net interest income
S
9.5 million.
C.
Change in net interest income
$
3.0 million
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