QUESTION $3(20$ marks$)$

The balance sheet $($book values$)$ of Hedge Row Bancorp $($in millions$)$ is provided below.

a$)$ Calculate the cumulative one$-$year repricing gap $($CGAP$)$ for Hedge Row Bancorp.

$(6$ marks$)$

b$)$ Based on the answer from a$)$ explain which risk Hedge Row Bankcorp would be

exposed to$.$

c$)$ Calculate the cumulative one$-$year impact on net interest income of Hedge Row

Bancorp of a $1\frac{11}{4}\%(125$ basis points$)$ increase in interest rates on both rate sensitive

assets and rate sensitive liabilities.

$(4$ marks$)$

d$)$ The weighted$-$average Duration of the assets of Hedge Row Bancorp is calculated at $3\mathrm{.}6$

years, while the weighted$-$average Duration of its liabilities is calculated at $2\mathrm{.}8$ years.

The market values of the assets are estimated to be $$1,000($million$),$ while the market

value of the liabilities equate to the book value. With interest rate expected to rise from

$9\%$ to $10\%,$ calculate the potential impact to the market value of the equity of Hedge

Row Bancorp.

$(8$ marks$)$

QUESTION $4(20$ marks$)$

a$)$ Explain the purpose of credit scoring models.

$(2$ marks$)$