Question

Hedge Row Bank has the following balance sheet (in millions):


The duration of the assets is six years and the duration of the liabilities is four years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year.
a. What is the duration gap for Hedge Row Bank?
b. What is the expected change in net worth for Hedge Row Bank if the forecast is accurate?
c. What will be the effect on net worth if interest rates increase 100 basis points?
d. If the existing interest rate on the liabilities is 6 percent what will be the effect on net worth of a 1 percent increase in interestrates?


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  • CreatedJanuary 27, 2015
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