Consider the balance sheet of Bush Bank. The bank just opened for business, and all dollar amounts are market values. Bush Bank owns three assets: cash ($100 million), a three-year final maturity commercial loan ($700 million) earning 12 percent, and a six-year Treasury bond ($200) earning 8 percent. It pays interest on one-year time deposits (TDs ($620 million)) at 5 percent and three-year CDs at 7 percent. The economic value of equity is 8 percent of assets. The analysis assumes that there will be no defaults, prepayments, or early deposit withdrawals. All securities make equal annual interest payments with annual compounding.
PLEASE ANSWER THE QUESTIONS
Calculate the weighted average duration of assets
Calculate the weighted average duration of liabilities
Calculate Expected Net interest income
Calculate Leverage Adjusted Duration GAP

Answer rating: 100% (QA)

To calculate the weighted average duration of assets we need to consider the duration of each asset weighted by its market value Duration is a measure of the sensitivity of an assets price or value to ... View the full answer