The average duration of the loans is 10 years. The average duration of the deposits is 3
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Question:
The average duration of the loans is 10 years. The average duration of the deposits is 3 years.
Consumer Loans $50m Deposits $235m
Commercial Loans $200m Equity $15m
Total assets $250m Total Liabilities and equity $250m
a)What is the leveraged-adjusted duration gap of the bank's portfolio?
b)What is the change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 10 percent (i.e., R = +0.01, and 1 + R = 1.10)?
c)What is the number of T-bond futures contracts necessary to hedge the balance sheet if the duration of the deliverable bonds is 9 years and the current price of the futures contract is $96 per $100 face value?
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