Gotbucks Bank, Inc. (dollars in millions) Assets Liabilities and Equity Cash 36 Core deposits 38 Federal funds
Question:
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 (........).
Mergers, Acquisitions, and Other Restructuring Activities An Integrated Approach to Process, Tools,
ISBN: 978-0123854858
6th Edition
Authors: Donald m. depamphilis