Question

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

Assets					Liabilities and Equity
Cash	$	22			Overnight repos	$	213
1-month T-bills (7.17%)		99			Subordinated debt
3-month T-bills (7.37%)		99			7-year fixed (8.67%)		162
2-year T-notes (7.62%)		62
8-year T-notes (9.08%)		112
5-year munis (floating rate) (8.32% reset every six months)		37			Equity		56
Total	$	431			Total	$	431

a. What is the repricing or funding gap if the planning period is 30 days? 91 days? 2 years? (Recall that cash is a non-interest-earning asset.)
b. 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: $11 million for two-year T-notes, $21 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?

Answer 1

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