Problems: To earn full credit all your work including the complete formula must be shown, if required. (70 points)

1. The following are a banks interest-sensitive assets and interest-sensitive liabilities on its balance sheet and the rate sensitivity index:

Interest-sensitive Assets Rate Sensitivity Index

Loans $5,000,000 1.50

Federal funds sold 500,000 1.00

Investment in securities 3,000,000 1.20

Leases 8,000,000 1.30

Interest-sensitive Liabilities Rate Sensitivity Index

CDs maturing in 3 months $7,000,000 0.40

Money market deposits 10,000,000 0.80

Other short-term deposits 12,000,000 0.70

Interest-bearing deposits 2,000,000 0.90

1. Calculate the dollar interest-sensitive gap adjusting for the interest rate sensitivity index. (20 point)
2. Interest rate decline by 0.25 percent (one-quarter of a percent). Using weighted balance sheet adjusted for the rate-sensitivity index, calculate the increase or decrease in banks net interest income resulting from the decline in rates. (3 points)
3. If the banks total assets are $25,000,000, calculate the Interest sensitive ratio using IS assets and IS liabilities unadjusted for the rate-sensitivity index. (5 points)