Gotbucks Bank, Inc. (dollars in millions)
Assets                                              Liabilities and Equity
Cash                          36                Core deposits                         38      
Federal funds          26                Federal funds                          56      
Loans (floating)      111               Euro CDs                                136      
Loans (fixed)           71                  Equity                                      14      
Total assets     $     244                Total liabilities and equity $ 244      


Notes to the balance sheet: Currently, the fed funds rate is 9.1 percent. Variable-rate loans are priced at 2 percent over LIBOR (currently at 11 percent). Fixed-rate loans are selling at par and have five-year maturities with 12 percent interest paid annually. Assume that fixed rate loans are non-amortizing. Core deposits are all fixed rate for two years at 8 percent paid annually. Euro CDs currently yield 9 percent.
 
a. What is the duration of Gotbucks Bank’s (GBI) fixed-rate loan portfolio if the loans are priced at par?   

Duration is  (  ........ ) years.
 
b. If the average duration of GBI’s floating-rate loans (including fed fund assets) is .42 year, what is the duration of the bank’s assets?

Duration assets is  (  ........ ) years.

c. What is the duration of GBI’s core deposits if they are priced at par?

Duration deposits is  (  ........ ) years.

d. If the duration of GBI’s Euro CDs and fed fund liabilities is .407 year, what is the duration of the bank’s liabilities?  

Duration liabilities is  (  ........ ) years.

e-1. What is GBI’s duration gap?  

Duration gap is  (  ........ ) years.

e-2. What is the expected change in equity value if all yields increase by 100 basis points?

Expected change in equity value is (........).

e-3. Given the equity change in e-2, what is the expected new market value of equity after the interest rate change?

New market value is (........).

Answer rating: 100% (QA)

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