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4. The managers of Grand Bank asks for a performancefrisk analysis, and asks you to answer the following questions. Grand Bank's balance sheet is as follows: Assets: Ave. Duration Securities 3% rate $20 million 1 year Long-term Loans 7% rate $ 120 million 6 years Total Assets $ 140 million Liabilities & Equity Short-term Deposits 1% rate 3 100 million 1 year Certificates of Deposit 2% rate 26 million 2 year Total Liabilities $126 million Equity 14 million Total Liab.& Equity $140 million a. What is the bank's expected net interest income 2" (N11) and expected net interest margin (NJM)? [I-Iint: N11 = Sum (Each asset :4 its rate) Sum (Each liability 24 its rate)] and MM = N11 1' Earning Total Assets (excludes cash} N11($'s} NIM % b. If the bank has the N131 % that you calculated above, a PLL% of 1.20%, and a Burden % of 2.50%, what is the bank's operating ROA before taxes (NTM Burden% - PLL%)? Operating ROA (OROA) c. What is the equity multiplier {EM} for the bank? (hint EM = total assetslequity} EM c. Using this equity multiplier, what is the bank's Operating ROE? (hint ROE = OROA x EM) Operating ROE e. What is the bank's 1-year income (funding) gap (Rate Sensitive Assets (REA) for 1 year Rate Sensitive Liabilities (RSL) for 1 year? Funding Gap e. Given this funding gap if rates go up by 1%, what is the expected change in the bank's N11 S? [Hintz Change N11 S = Funding Gap x Change Rate] Expected Change in NI] e. What is the Bank's Duration gap (D-Gap)? D-GAP = Duration of Assets {[Total LiastTotal Assets] x Duration Liabs.} Hint: Duration of Assets = Sum {[Each type ofassetr' Total Assets] 24 its Duration} Duration of Liabilities = Sum {[Each type of Liability E Total Liabs.] it its Duration} Duration of Assets Duration of Liabilities Duration Gap f. What is the expected % change in the value of equity with a rise in rates of 1%? Expected Change in Value of Equity = - D-GAl' x {[(Chg rate .3 (1+ Ave loan rate}] \"*(Use 7% as the average loan rate). Expected % Chg in the Value of the Bank's Equity