Integrated Mini Case: Chapters 8 and 9 CALCULATING AND USING REPRICING AND DURATION GAP State Bank's balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. Cash Fed funds (2.05%, 0.02) 3-month T-bills (3.25%, 022) a-year T-bonds (6.50%, 7.55) 5-year munis (7.20%, 4.25) 6-month consumer loans (5%, 0.42) 5-year car loans (6%, 378) 7-month loans (4.8%, 0.55) 2-year loans (4.15%, 1.65) Fixed-rate mortgages (5.10%, 0.48) (maturing in 5 months) Fixed-rate mortgages (6.85%, 0.85) (maturing in 1 year) Fixed-rate mortgages (5.30%, 4.45) (maturing in 5 years) Fixed-rate mortgages (5.40%, 18.25) (maturing in 20 years) Premises and equipment Total assets 31 150 200 250 50 250 350 200 275 300 275 355 20 $3, 156 Liabilities and Equity Demand deposits Savings accounts (0.5%, 1.25) Money market deposit accounts (MMDAs) (3.5%, 0.50) (no minimum balance requirement) 3-month CDs (3.2%, 0.20) I-year CDs (3.5%, 0.95) 5-year CDs (5%, 4.85) Fed funds (2%, 0.02) Repos (2%, 0.05) 6-month commercial paper (4.05%, 0.55) Subordinate notes: 0.92) I-year fixed rate (5.55%, Subordinated debt: I-year fixed rate (6.25%, 6.65) Total liabilities Equity Total liabilities and equity S 253 50 460 175 375 350 225 290 300 200 100 $2,778 378 $3,156 a. What is State Bank's repricing gap if the plan- ning period is six months? one year? b. What is State Bank's duration gap? c. What is the impact over the next six months on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 35 basis points? Explain the results. d. What is the impact over the next year on net interest income if interest rates on RSAs decrease (increase) 35 basis points and on RSLs decrease (increase) 50 basis points? Explain the results. e. f. g. Chapter 9 Interest Rate Risk II 269 Use these duration values to calculate the expected change in the value of the assets and liabilities of State Bank for a predicted decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities. What is the change in equity value fore- casted from the duration values for decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities? Use the duration gap model to calculate the change in equity value if the relative change in all market interest rates is a decrease of 50 basis points.