A savings institution (SI) has funded $12 million of 30-year fixed-rate mortgages with an average interest rate of 5.75%. These assets are funded with time deposits with an average maturity of six months. The deposits are currently paying 3.5%. In six months' time, however, the Fed has raised interest rates twice and the depositors now must be paid 4.25%. What will happen to the SI's ROA and NIM? How would your answer change if the SI normally sells the mortgages every 6 months and originates additional new mortgage loans?

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The Answer of A savings institution (SI) has funded $12 million of 30-year fixed-rate mortgages with an average interest rate of 5.75%. These assets are funded with time deposits with an average maturity of six months. The deposits are currently paying 3.5%. In six months' time, however, the Fed has raised interest rates twice and the depositors now must be paid 4.25%. What will happen to the SI's ROA and NIM? How would your answer change if the SI normally sells the mortgages every 6 months and originates additional new mortgage loans?

A Savings Institution (SI) Has Funded $12 Million of 30-Year