Use the following information about a hypothetical government security dealer named J.P.Groman.
(Market yields are in parentheses; amounts are in millions.)
Cash $10 Overnight repos $170
1-month T-bills (7.05%) $75 Subordinated debt
3-month T-bills (7.25%) $75 7-year fixed (8.55%) $150
2-year T-notes (7.50%) $50
8-year T-notes (8.96%) $100
5-year munis (floating rate) (8.20% reset every six months) $25 Equity $15
Total $335 $335
a. 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.)
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: $10M for two-year T-notes, $20M for the eight-year 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?
Please see attached the Word file.
a. What is the funding or repricing gap if the planning period is 30 days? 91 days? 2 years? Recall that cash is a noninterest-earning asset.
Funding or repricing gap using a 30-day planning period = 75 170 = $95 million. Funding gap ...
The solution provides detailed calculations and explanations for the problem in the attached Word document.