What is Any Ole Bank’s duration gap? Convert Book value to Market value?

	A.	+0.31 years
	B.	+0.39 years
	C.	+0.12 years
	D.	-0.65 years
	E.	+1.01 years

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Assets: 91 day US Treasury bills 2 year EIDL Loans Any Ole Bank $700 $975 Fixed rate, coupon=1.95% p.a. annually 10 year US Treasury bonds $500 Coupon rate=3% pa. 10 year floating rate commercial loans Repriced quarterly $300 (BOOK Values $ million) Liabilities: 1 year Certificates of Deposit coupon-0.15% p.a. annually Demand Deposits 15 year Subordinated Bonds Fixed Rate, coupon-4% p.a. quarterly Equity $975 $800 $400 Notes: The 91day US Treasury bills yield 1.25% p.a. The 2 year EIDL Loans yield 4% p.a. The 10 year US Treasury Bonds yield 2.5% p.a. and have a duration of 8.75 years. The floating rate commercial loans are priced at a 5% discount from face value and pay LIBOR plus 75 basis points. The 15 year Subordinated bullet bonds yield 3.8% p.a. and have a duration of 11.4 years. The demand deposits are non-interest bearing and turn over every month on average. Both the CDs and the demand deposits are priced at par. All instruments are non-amortizing, and there are no run-offs. Assets: 91 day US Treasury bills 2 year EIDL Loans Any Ole Bank $700 $975 Fixed rate, coupon=1.95% p.a. annually 10 year US Treasury bonds $500 Coupon rate=3% pa. 10 year floating rate commercial loans Repriced quarterly $300 (BOOK Values $ million) Liabilities: 1 year Certificates of Deposit coupon-0.15% p.a. annually Demand Deposits 15 year Subordinated Bonds Fixed Rate, coupon-4% p.a. quarterly Equity $975 $800 $400 Notes: The 91day US Treasury bills yield 1.25% p.a. The 2 year EIDL Loans yield 4% p.a. The 10 year US Treasury Bonds yield 2.5% p.a. and have a duration of 8.75 years. The floating rate commercial loans are priced at a 5% discount from face value and pay LIBOR plus 75 basis points. The 15 year Subordinated bullet bonds yield 3.8% p.a. and have a duration of 11.4 years. The demand deposits are non-interest bearing and turn over every month on average. Both the CDs and the demand deposits are priced at par. All instruments are non-amortizing, and there are no run-offs.

Answer rating: 100% (QA)

ANSWER C 039 years EXPLANATION Any Ole Banks duration gap is the difference between the durations of ... View the full answer