1. What is the interest sensitive gap (ISG)? In using this model to evaluate interest rate risk, what is meant by rate sensitivity? On what financial performance variable does the ISG model focus? Explain. 2. Consider the following balance sheet for Bank of America (in millions of dollars): Assets Liabilities 1. Cash and due from 6.25 1. Equity capital (fixed) 25 2. Short term consumer loans (float rate) 62.50 2. Demand Deposits (float rate) 50 3. Long-term consumer loans (fixed rate) 31.25 3. Passbook savings (fixed rate) 37.5 4. Three-month T-bill (float rate) 37.50 4. Three-month CDs (fixed rate) 50 5. Six-month T-bill (fixed rate) 43.75 5. Three-month banker's acceptances (float rate) 25 6. Three-year T-bonds 75.00 6. Six-moth commercial paper (float rate) 75 7. 10-year, fixed rate mortgages 25.00 7. One-year time deposits (float rate) 25 8. 30-year, floating-rate mortgages 50.00 8. Two-year time deposits (fixed rate) 50 9. Premises 6.25 337.50 337.50a. Calculate the value of Bank of America's rate-sensitive assets, rate sensitive liabilities, and repricing gap over the next year. b. Calculate the expected change in the net interest income for the bank if interest rates rise by 1 percent on both assets and liabilities. If interest rates fall by 1 percent on both assets and liabilities. 0. Calculate the expected change in the net interest income for the bank if interest rates rise by 1.2 percent on assets and by 1 percent on liabilities. If interest rates fall by 1.2 percent on assets and by 1 percent on liabilities. 3. What are the reasons for not including two-year time deposits as rate-sensitive liabilities in the ISG analysis for a commercial bank? What is the subtle but potentially strong reason for including demand deposits in the total of rate sensitive liabilities? 4. What are some of the weakness of the ISG model? How have large banks solved the problem of choosing the optimal time period for ISG