Consider the following repricing buckets:Repricing Bucket Assets Liabilities1 day $250,000 $300,0001 day to 3 months $150,000 $100,0003 to 6 months $300,000 $250,0006 to 12 months $500,000 $260,0001 to 5 years $150,000 $260,000Over 5 years $50,000 $200,000What is the change in the bank’s future net interest income if the average rate change for assets and liabilities that can be repriced within 6 months is an increase of 1%?Round your final answer to 2 decimal places.E.g. if the final answer is -$3,590 , type -3,590 in the answer box. If the final answer is $3,590 , type 3,590 in the answer box (i.e do not type the dollar sign) .
Question
Consider the following repricing buckets:Repricing Bucket Assets Liabilities1 day 300,0001 day to 3 months 100,0003 to 6 months 250,0006 to 12 months 260,0001 to 5 years 260,000Over 5 years 200,000What is the change in the bank’s future net interest income if the average rate change for assets and liabilities that can be repriced within 6 months is an increase of 1%?Round your final answer to 2 decimal places.E.g. if the final answer is -3,590 , type 3,590 in the answer box (i.e do not type the dollar sign) .
Solution
To calculate the change in the bank's future net interest income, we need to first identify the assets and liabilities that can be repriced within 6 months.
From the table, we can see that the assets and liabilities that can be repriced within 6 months fall into the first three repricing buckets:
1 day:
- Assets: $250,000
- Liabilities: $300,000
1 day to 3 months:
- Assets: $150,000
- Liabilities: $100,000
3 to 6 months:
- Assets: $300,000
- Liabilities: $250,000
Next, we calculate the net amount of assets and liabilities in each bucket by subtracting the liabilities from the assets:
1 day: 300,000 = -150,000 - 50,000 3 to 6 months: 250,000 = $50,000
Then, we sum up these net amounts to get the total net amount that can be repriced within 6 months:
-50,000 + 50,000
Finally, we calculate the change in the bank's future net interest income due to a 1% increase in the average rate. This is done by multiplying the total net amount that can be repriced within 6 months by the rate change:
500
So, the change in the bank's future net interest income if the average rate change for assets and liabilities that can be repriced within 6 months is an increase of 1% is $500.
Similar Questions
As the interest rate increases for any given period, the future value will
If total liabilities increased by $45,000 and equity increased by $15,000 during a period of time, then total assets: A. decrease by $30,000. B. increase by $30,000. C. decrease by $60,000. D. increase by $60,000.
SourBank is quite certain that interest rates are going to increase next month. How should the bank adjust the bank’s one-month repricing gap to increase the net interest income when interest rates increase ?Group of answer choicesThe bank should set its repricing gap to a positive position. In this case, as rates increase, market value of assets will increase by more than the increase in market value of liabilities. The bank should set its repricing gap to a negative position. In this case, as rates increase, interest expense will increase by less the increase than interest income.The bank should set its repricing gap to a positive position. In this case, as rates increase, interest income will increase by more than the increase in interest expense.The bank should set its repricing gap to a negative position. In this case, as rates increase, market value of assets will increase by more than the increase in market value of liabilities.
What will be the change in a sum of money compounded annually at 20% for 3.5 years? 51%76%90%68%
American Corporation has the following financial information. Year 1 Year 2Cash $ 202.95 $ 245.90 A/R 398.02 485.34 Inventory 785.12 648.54 If Year 1 is the base year, what is the percentage increase/decrease of each current asset amount?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.