Calculate Weighted Average Duration Of Assets And Liabilities Of A Bank

Question

The numbers provided are in millions of dollars and reflect market values:

Cash		20	Deposits	historical avg. maturity = 4 years; historical average duration = 3.5 years	200
T-Bills	30 days (4.5 percent, par)	50	Certificates of Deposit	avg. maturity = 6 months; avg. duration = 6 months	150
T-Bills	91 days (5.0 percent, par)	60	Short-term Debt	avg. maturity = 4 years	150
Commercial Loans	avg. maturity = 9.0 years; avg. duration = 7.5 years	300	Long-term debt	avg. maturity = 15 years; average duration = 12 years	200
Consumer Loans	avg. maturity = 6.0 years; avg. duration = 4.0 years	200	Equity		130
Mortgage Loans – Fixed rate	avg. maturity = 30 years; avg. duration = 25 years	150
Mortgage Loans - Adjustable	avg. maturity = 30 years; interest rate reset = 6 months	50
Total Assets:		830	Total Liabilities & Equity:		830

1. The short-term debt consists of 4-year bonds paying an annual coupon of 4 percent and selling at par. What is the duration of the short-term debt?
   a.   3.28 years.
   b.   3.53 years.
   c.   3.78 years.
   d.   4.03 years.
   e.   4.28 years.

2. What is the weighted average duration of the assets of the FI?
   a.   7.25 years.
   b.   7.75 years.
   c.   8.25 years.
   d.   8.75 years.
   e.   9.25 years.

3. What is the weighted average duration of the liabilities of the FI?
   a.   5.00 years.
   b.   5.35 years.
   c.   5.70 years.
   d.   6.05 years.
   e.   6.40 years.

Summary

These short questions belong to Finance and the questions are about a bank whose assets and liabilities have been given. Questions such as duration of short term debt, weighted average duration of assets and weighted average duration of liabilities of the bank have been calculated in the solution.

Total Word Count 130