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Integrated Mini Case for Chapter 9: Calculating and Using Repricing & Duration GAP
State Bank’s balance sheet is listed below. Market yields and durations (in years) are in
parenthesis, and amounts are in millions.
Assets Liabilities and Equity
Cash $31 Demand deposits $253
Fed funds (2.05%, 0.02) 150 Savings accounts (0.5%, 1.25) 50
3-month T-bills (3.25%, 0.22) 250 MMDAs (3.5%, 0.50)
8-year T-bonds (6.50%, 7.55) 250 (no minimum balance requirement) 460
5-year munis (7.20%, 4.25) 50 3-month CDs (3.2%, 0.20) 200
6-month consumer loans (5%, 0.42) 250 1-year CDs (3.5%, 0.95) 350
5-year car loans (6%, 3.78) 350 5-year CDs (5%, 4.85) 350
7-month C&I loans (4.8%, 0.55) 200 Fed funds (2%, 0.02) 225
2-year C&I loans (4.15%, 1.65) 275 Repos (2%, 0.05) 290
Fixed-rate mortgages (5.10%, 0.48) 6-month commercial paper
(maturing in 5 months) 450 (4.05%, 0.55) 300
Fixed-rate mortgages (6.85%, 0.85) Subordinate notes:
(maturing in 1 year) 250 1-year fixed rate (5.55%, 0.92) 200
Fixed-rate mortgages (5.30%, 4.45) Subordinated debt:
(maturing in 5 years) 275 7-year fixed rate (6.25%, 6.65) 100
Fixed-rate mortgages (5.40%, 18.25) Total liabilities $2,778
(maturing in 20 years) 355
Premises and equipment 20 Equity 378
Total assets $3,156 Total liabilities and equity $3,156
a. What is the repricing gap if the planning period is six months? One year?
b. What is State Bank’s duration gap?
c. What is the impact over the next six months on net interest income if interest rates on
RSAs increase 50 basis points and on RSLs increase 35 basis points? Explain the results.
d. What is the impact over the next year on net interest income if interest rates on RSAs
decrease (increase) 35 basis points and on RSLs decrease (increase) 50 basis points?
Explain the results.
e. Use these duration values to calculate the expected change in the value of the assets and
liabilities of State Bank for a predicted decrease of 0.35 percent in interest rates on assets
and 0.50 percent on liabilities.
f. What is the change in equity value forecasted from the duration values for decrease of 0.35
percent in interest rates on assets and 0.50 percent on liabilities?
Sample Solution