QUESTION 5 Suppose a bank has $100 million in assets, $80 million in liabilities (excluding Bank...

 

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QUESTION 5 Suppose a bank has $100 million in assets, $80 million in liabilities (excluding Bank Capital), and $20 million in Bank Capital. The average duration of assets 3.5 years, and the average duration of liabilities = 4 years. = Use the duration analysis to evaluate the Bank's exposure to interest rate risk when interest rate RISES from 3% to 5% (i.e. change in i = 2% points). ANSWER THE FOLLOWING QUESTIONS: a. [2.5 points] What is the impact of the change in interest rate (rise from 3% to 5%) on the bank's assets? Obtain the % impact and the impact in *dollars* as well. SHOW ALL WORK. b.[2.5 points] What is the impact of the change in interest rate (rise from 3% to 5%) on the bank's liabilities? Obtain the % impact and the impact in *dollars* as well. SHOW ALL WORK. c. [2 points] What is the overall impact in dollars? Show calculations and interpret your findings. QUESTION 5 Suppose a bank has $100 million in assets, $80 million in liabilities (excluding Bank Capital), and $20 million in Bank Capital. The average duration of assets 3.5 years, and the average duration of liabilities = 4 years. = Use the duration analysis to evaluate the Bank's exposure to interest rate risk when interest rate RISES from 3% to 5% (i.e. change in i = 2% points). ANSWER THE FOLLOWING QUESTIONS: a. [2.5 points] What is the impact of the change in interest rate (rise from 3% to 5%) on the bank's assets? Obtain the % impact and the impact in *dollars* as well. SHOW ALL WORK. b.[2.5 points] What is the impact of the change in interest rate (rise from 3% to 5%) on the bank's liabilities? Obtain the % impact and the impact in *dollars* as well. SHOW ALL WORK. c. [2 points] What is the overall impact in dollars? Show calculations and interpret your findings.

Answer rating: 100% (QA)

Step 13 Duration gap analysis is done to see the impact of interest ... View the full answer