Question 2- Income Gap + Overall Duration Gap [17 marks] (a) Consider the following balance sheet of Banco Credit: Assumptions - Fixed rate mortgages repaid in the coming year =25% - Savings deposits that become rate sensitive in the coming year =20% - All commercial loans are rate sensitive - All money market deposits are rate sensitive Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 4% to 5% (4 marks) (b) What is the duration gap for Banco Credit? (4 marks) (c) What is the estimated change in the value of equity (in $s ) for Banco Credit if interest rates increase by 1% from 4% to 5% ? (4 marks) (d) Explain why a bank with a positive duration gap is estimated to see a fall in the value of its equity when interest rates increase