# Question

Consider the following balance sheet for Watchovia Bank ( in millions):

a. What is Watchovia’s expected net interest income at year-end?

b. What will net interest income be at year-end if interest rates rise by 2 percent?

c. Using the one-year cumulative repricing gap model, what is the expected net interest income for a 2 percent increase in interest rates?

d. What will net interest income be at year-end if interest rates on RSAs increase by 2 percent but interest rates on RSLs increase by 1 percent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why?

a. What is Watchovia’s expected net interest income at year-end?

b. What will net interest income be at year-end if interest rates rise by 2 percent?

c. Using the one-year cumulative repricing gap model, what is the expected net interest income for a 2 percent increase in interest rates?

d. What will net interest income be at year-end if interest rates on RSAs increase by 2 percent but interest rates on RSLs increase by 1 percent? Is it reasonable for changes in interest rates on RSAs and RSLs to differ? Why?

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