3. Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities...

 

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3. Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities are currently priced at par and pay interest annually. Assets Amount ($ millions) Annual Liabilities Amount Annual Rate ($ millions) Rate 2-year loans $40 8% 3-year CD $60 7% 3-year loans $60 8% 5-year term deposit $30 6% Equity $10 Total $100 Total $100 a. What is the (market-)value-weighted average maturity of the liabilities and assets of the FI? b. Is the bank exposed to interest rate increases or decreases and why? C. What is the change in the value of its assets if all interest rates decrease by 1 percent? d. What is the change in the value of its liabilities if all interest rates decrease by 1 3. Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities are currently priced at par and pay interest annually. Assets Amount ($ millions) Annual Liabilities Amount Annual Rate ($ millions) Rate 2-year loans $40 8% 3-year CD $60 7% 3-year loans $60 8% 5-year term deposit $30 6% Equity $10 Total $100 Total $100 a. What is the (market-)value-weighted average maturity of the liabilities and assets of the FI? b. Is the bank exposed to interest rate increases or decreases and why? C. What is the change in the value of its assets if all interest rates decrease by 1 percent? d. What is the change in the value of its liabilities if all interest rates decrease by 1

Answer rating: 100% (QA)

a To calculate the marketvalueweighted average maturity of the liabilities and assets we need to multiply the amount of each loan or deposit by its respective maturity and then divide the total by the ... View the full answer