H18 Z O LU G E I 1 Hedging DGAP and EVE Name: Market Value Duration Liabilities and Market Value Duration Assets 000s Rate (Years) Equity 100s Rate (Years) Nm + Cash 1,250 DDA Depposits 2,125 1.35% 1.15 Consumer Loans (4-year variable rate) 1,950 4.50% 3.85 Time Deposits 1,650 2.45% 2.55 Consumer Loans (3-year variable rate) 2,395 3.75% 2.75 CD's 2,195 4.25% 3.95 In D Commercial Loans (5-year variable rate) 2,655 4.25% 4.55 MMDAs 2,050 2.75% 2.55 Bonds A 5.75% 4.48 Bonds B 4.75% 3.73 Equity 230 8,250 ALAL Total 8,250 7,000 RSL 8,020 12 Face Value Term (yrs) Coupon % Frequency Current % 13 Bond A: $ 1,000 5.75 Annual 5.95% 14 Bond B $ 1,000 4.75 Annual 5.25% 16 What is the present value of Bond A? Bond B: 18 What is the modified duration of Bond A: Bond B: 20 What is the banks GAP? (not duration gap) 21 What is the banks net interest income? 22 What is the banks current net interest margin? 23 If interest rates DECREASE by 2%, how much will net interest income change? 24 What will be the new net interest income and net interest margin? 26 Weighted Average Duration of Assets 27 Weighted Average Duration of Liabilities 28 Duration Gap 29 Weighted Average Return of Assets (WROA) 30 Weighted Average Cost of Liabilities (WCOL) 1000s 1.00% 32 How much will the EVE change if interest rates change by: 34 The bank would like to hedge its balance sheet for 3-months. The bank 98.85 1.15% 35 Eurodollars futures with 3-month maturity from today: 36