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Solution Library
Calculate Leverage Adjusted Duration Gap And Interest Rate Risk Exposure For Bank
Question
|
Assets |
Amount |
Rate |
Duration |
|
Cash |
$75 million |
|
|
|
Loans |
$750 million |
12 percent |
1.75 years |
|
Treasuries |
$175 million |
9 percent |
7.00 years |
|
Liabilities and Equity |
|
|
|
|
Time Deposits |
$350 million |
7 percent |
1.75 years |
|
CDs |
$575 million |
8 percent |
2.50 years |
|
Equity |
$75 million |
|
|
1. Calculate the duration of the assets.
a. 2.54 years.
b. 4.375 years.
c. 1.75 years.
d. 3.08 years.
e. 2.50 years.
2. Calculate the duration of the liabilities.
a. 2.05 years.
b. 1.75 years.
c. 2.22 years.
d. 2.125 years.
e. 2.50 years.
3. Calculate the leverage-adjusted duration gap and state the FI's interest rate risk exposure.
a. +1.03 years; exposed to interest rate increases.
b. +0.32 years; exposed to interest rate increases.
c. +0.86 years; exposed to interest rate increases.
d. +0.49 years; exposed to interest rate increases.
e. –1.32 years; exposed to interest rate decreases.
4. If all interest rates decline 90 basis points (DR/(1+R) = -90 basis points), what is the change in the market value of equity?
a. –$4.430 million.
b. +$3.925 million.
c. +$4.378 million.
d. +$2.550 million.
e. +$0.022 million.
Summary
These short questions belong to Finance and the questions deal with calculation of duration of assets and liabilities and leverage adjusted duration gap and the bank’s interest rate risk exposure. The calculations have been given in the solution in detail.
Total Word Count 116
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