Qusetion: A bank has the following balance sheet:
Suppose interest rates rise such that the average yield on rate-sensitive assets increases by 45 basis points and the average yield on rate-sensitive liabilities increases by 35 basis points.
a. Calculate the bank's repricing GAP and gap ratio.
b. Assuming the bank does not change the composition of its balance sheet, calculate the resulting change in the bank's interest income, interest expense, and net interest income.
c. Explain how the CGAP and spread effects influenced the change in net interest income.