First National Bank of America has more than 75% of its assets in first residential fixed-rate mortgages that mature in more than 5 years. Suppose that a 12-month Gap Analysis predicts a decrease in 2021 interest income of $3 million if there is a sudden 1% drop in market interest rates. From your knowledge of the practical flaws in gap analysis, a realistic simulation analysis would predict that:. 1. Interest income will drop by more than $3 million for a sudden 1% drop in market interest rates
2. Interest income will drop by less than $3 million for a sudden 1% drop in market interest rates