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### Solution to Stage Thirteen

1. EAR95% = [repricing asset × (Δ95% asset rate)] – [repricing deposits × (Δ95% deposit rate)] = ((100 × 2%) – (120 × 0.5 × 2%))/4 = (2 – 1.2)/4 = 0.2
2.
 EAR95% = [repricing asset × (Δ95% asset rate)] – [repricing deposits × (Δ95% deposit rate)] = ((100 × 2%) – (120 × 0.75 × 2%))/4 = (2 – 1.8)/4 = 0.05

If you compare these results to the answers given in Stage 12, you realize that the elasticity of interest rates to a change in interbank rate can have a significant impact on the evaluation of the interest rate exposure. ALM is an art as it relies not only on mathematics but also on relevant assumptions.

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