Assets 6,000,000 9,000,000 9,000,000 10,000,000 6.40 Reserves Securities 2 years Residential Mortgages Variables-rate Fixed-rate Commercial Loans 2 years Buildings, etc. 12,000,000 10,000,000 Wells Bank Duration Liabilities Duration 0.00 Checkable Deposits 10,000,000 1.6 Money Market Deposits 8,000,000 0.20 0.60 Savings Accounts 26,000,000 1.00 1.80 CDs Variables-tate 9,000,000 0.30 2 years 6,000,000 2.20 Interbank Loans 8,000,000 0.60 Borrowings 2.20 2 years 6,000,000 3.60 Bank Capital 10,000,000 Total $110,000,000 0.00 12,000,000 12,000,000 18,000,000 12,000,000 Total S110,000,000 a. From previous experience, the bank manager of Wells Bank knows that 15% of the fixed-rate residential mortgages are repaid within a year. The bank manager also estimates that 15% of checkable deposits and 20% of savings deposits should be considered rate-sensitive. 1. What is the current income GAP for Wells Bank? Shows all the calculations. 7 marks li. If the bank manager of Wells Bank sells $3 million of its securities with maturities greater than two years and replaces them with securities maturing in less than one year; and revises the estimate of the percentage of fixed-rate mortgages that are repaid within a year from 15% to 25%, what will be the revised income gap for the bank? Shows all the calculations. iii. With reference to your answer in part (a)(ii), what will happen to Well Bank's net interest income if interest rates rise by 50 basis points? Show all the calculations. 3 marks b. Given the financial data for current year: if interest rates increase from 8% to 9%, what will happen to Well Bank's market value of i. Assets; ii. Liabilities; and iii. Net Worth? Show all the calculations. 18 marks c. i. Based on the financial data for current year, determine the duration gap for Wells Bank. Show all the calculations. 3 marks ii. Refer to your answer in part c(i), what will happen to the bank's market value of net worth as a percentage of assets if interest rates rise from 8% to 18%? Will Wells Bank stay in business? Why or why not? Explain your answers and show all the calculations. 8 marke Assets 6,000,000 9,000,000 9,000,000 10,000,000 6.40 Reserves Securities 2 years Residential Mortgages Variables-rate Fixed-rate Commercial Loans 2 years Buildings, etc. 12,000,000 10,000,000 Wells Bank Duration Liabilities Duration 0.00 Checkable Deposits 10,000,000 1.6 Money Market Deposits 8,000,000 0.20 0.60 Savings Accounts 26,000,000 1.00 1.80 CDs Variables-tate 9,000,000 0.30 2 years 6,000,000 2.20 Interbank Loans 8,000,000 0.60 Borrowings 2.20 2 years 6,000,000 3.60 Bank Capital 10,000,000 Total $110,000,000 0.00 12,000,000 12,000,000 18,000,000 12,000,000 Total S110,000,000 a. From previous experience, the bank manager of Wells Bank knows that 15% of the fixed-rate residential mortgages are repaid within a year. The bank manager also estimates that 15% of checkable deposits and 20% of savings deposits should be considered rate-sensitive. 1. What is the current income GAP for Wells Bank? Shows all the calculations. 7 marks li. If the bank manager of Wells Bank sells $3 million of its securities with maturities greater than two years and replaces them with securities maturing in less than one year; and revises the estimate of the percentage of fixed-rate mortgages that are repaid within a year from 15% to 25%, what will be the revised income gap for the bank? Shows all the calculations. iii. With reference to your answer in part (a)(ii), what will happen to Well Bank's net interest income if interest rates rise by 50 basis points? Show all the calculations. 3 marks b. Given the financial data for current year: if interest rates increase from 8% to 9%, what will happen to Well Bank's market value of i. Assets; ii. Liabilities; and iii. Net Worth? Show all the calculations. 18 marks c. i. Based on the financial data for current year, determine the duration gap for Wells Bank. Show all the calculations. 3 marks ii. Refer to your answer in part c(i), what will happen to the bank's market value of net worth as a percentage of assets if interest rates rise from 8% to 18%? Will Wells Bank stay in business? Why or why not? Explain your answers and show all the calculations. 8 marke