1.The First National Bank's Assets and Liabilities are given in the following table Assets $250M Liabilities $205M...
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Question:
1.The First National Bank's Assets and Liabilities are given in the following table
Assets $250M Liabilities $205M
Equity $45M
TOTAL $250M TOTAL $250M
The duration of the assets is 5 years and the duration of the liabilities is 3 years. The interest rate on both the assets and the liabilities is 3.5%. The bank is expecting interest rates to increase from 3.5% to 5% over the next year.
a.What is the duration gap for the First National Bank? (5pt)
b.What is the expected change in the market value of net worth as a percentage of assets over the next year? (5pt)
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