Pasr 7. The following is the balance sheet foe MAG&L; Bank. The bank uses both D
ID: 2803726 • Letter: P
Question
Pasr 7. The following is the balance sheet foe MAG&L; Bank. The bank uses both Duration GAP management and Dollar GAP management. The bank has $180 in Equity Capital (Net Worth). Relevant information is included below: ASSETS RSA (4.0%) FRA (8.5%) $ 800 RSL (2%) $1,100 FRL (7.5%) S 900 $2,000 l $1.200 $2,000 Total Total DUR-sets = 2.5 mod DUR-2.35 DUR,abs = 1.9 mod DUR,1.8 a. What is the bank's Dollar GAP? (2 points) b. Calculate the bank's pre-tax profit currently. (9 points) c. Recalculate profits if Interest rates increase by 2% (200 basis points) (6 points)Explanation / Answer
b. Bank's net Income before tax = Interest on assets- interest on liabilities
= 4%*800 + 8.5%*1200 - 2%*1100 - 7.5%*900
= $44.5
c.
Bank's net Income before tax = Interest on assets- interest on liabilities
= 6%*800 + 8.5%*1200 - 4%*1100 - 7.5%*900
= $38.5