Use the following information about a hypothetical government security dealer na

Question

Use the following information about a hypothetical government security dealer named J.P. Groman. (Market yields are in parentheses; amounts are in millions.)

What is the repricing or funding gap if the planning period is 30 days? 91 days? 2 years? (Recall that cash is a noninterest-earning asset.)

What is the impact over the next 30 days on net interest income if all interest rates rise by 50 basis points?

c. The following one-year runoffs are expected: $16 million for two-year T-notes, $26 million for the eight-year T-notes. What is the one-year repricing gap?

d. If runoffs are considered, what is the effect on net interest income at year-end if interest rates rise by 50 basis points?

Assets Liabilities and Equity   Cash $ 16   Overnight repos $ 187   1-month T-bills (7.11%) 87   Subordinated debt   3-month T-bills (7.31%) 87   7-year fixed (8.61%) 156   2-year T-notes (7.56%) 56   8-year T-notes (9.02%) 106   5-year munis (floating rate)
     (8.26% reset every six month) 31   Equity 40      Total $ 383   Total $ 383

Explanation / Answer

(a) Repricing or funding gap using 30 days planning period (in million dollars) = Asset - liability = $87 - 187 = - $ 100

     Repricing or funding gap using 91 days planning period ( in million dallars) = (87+87) - 187 = - 13

     Repricing or funding gap using 2 years planning period ( in million dollars)= (87+87+56+31) - 187 = +74

(b) Impact over the next 30 days on net asset income if all interest rares rise 50 basic points =Net Interest income will decline by = - 100 x 0.005 = $ 0.5 million

(c) Repricing or funding gap over the one year planning period = ($87+87+16+26+31) - 187 = $60million

(d) Net interest income will increase by = 60 x 0.005 = $0.3 million

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