Rockford Bank Balance Sheet on December 31, 2021 PART A Assets Cash and Cash items Reserves...
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Rockford Bank Balance Sheet on December 31, 2021 PART A Assets Cash and Cash items Reserves at Fed Securities: Less than 1 year 1-2 years Greater than 2 years Residential mortgages: Variable-rate Fixed-rate (30 years) Commercial loans: Less than 1 year 1-2 years Greater than 2 years Building and Equipment Other Assets Total Assets Amount Duration ($ millions) (years) $6.00 5.00 41.00 3.00 8.00 30.00 15.00 50.00 33.00 23.00 12.00 1.00 $227.00 0.00 0.00 0.40 1.60 4.16 0.40 10.30 0.90 1.80 15.00 0.00 0.00 % wgt 2.643% 2.203% Wtd Avg Duration 0.000 0.000 18.062% 0.072 1.322% 0.021 3.524% 0.147 13.216% 0.053 6.608% 0.681 ISA 41.00 30.00 1.5 22.026% 0.198 50.00 14.537% 0.262 10.132% 1.520 5.286% 0.000 0.441% 0.000 100.000% 2.953 122.50 Liabilities Checkable deposits Money market demand accounts Savings deposits Certificates of deposit: Variable-rate Less than 1 year 1 -2 years Greater than 2 years Fed funds borrowed Borrowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities Total Liabilities Equity Capital Total Liabilities and Equity ISGAP DGAP -$17.25 0.516923 Amount ($ millions) $9.00 8.00 20.00 50.00 21.00 13.00 4.00 15.00 40.00 9.00 32.00 1.00 $222.00 $5.00 $227.00 Duration (years) 1.00 0.80 1.00 0.90 0.30 1.80 8.00 0.01 0.40 1.20 12.00 0.00 % wgt Wtd Avg Duration ISL 4.054% 0.041 $1.35 3.604% 0.029 8.00 9.009% 0.090 4.4 22.523% 0.203 50.00 9.459% 0.028 21.00 5.856% 0.105 1.802% 0.144 6.757% 0.001 18.018% 0.072 4.054% 0.049 14.414% 1.730 0.450% 0.000 100.000% 2.491 15.00 40.00 $139.75 Suppose you decide to immunize the bank by issuing long-term debt of $30 million with a duration of X years and using those funds to make variable-rate residential mortgage loans with a duration of 0.50 years. a. What is the duration of the long-term debt that you must issue to bring DGAPK = 0? (0.2 pt.) b. Show the new balance sheet. (0.2 pt.) c. Now, what is your ISGAP? (0.2 pt.) d. Explain the pros and cons of this bank's action. (0.2 pt.) Rockford Bank Balance Sheet on December 31, 2021 PART A Assets Cash and Cash items Reserves at Fed Securities: Less than 1 year 1-2 years Greater than 2 years Residential mortgages: Variable-rate Fixed-rate (30 years) Commercial loans: Less than 1 year 1-2 years Greater than 2 years Building and Equipment Other Assets Total Assets Amount Duration ($ millions) (years) $6.00 5.00 41.00 3.00 8.00 30.00 15.00 50.00 33.00 23.00 12.00 1.00 $227.00 0.00 0.00 0.40 1.60 4.16 0.40 10.30 0.90 1.80 15.00 0.00 0.00 % wgt 2.643% 2.203% Wtd Avg Duration 0.000 0.000 18.062% 0.072 1.322% 0.021 3.524% 0.147 13.216% 0.053 6.608% 0.681 ISA 41.00 30.00 1.5 22.026% 0.198 50.00 14.537% 0.262 10.132% 1.520 5.286% 0.000 0.441% 0.000 100.000% 2.953 122.50 Liabilities Checkable deposits Money market demand accounts Savings deposits Certificates of deposit: Variable-rate Less than 1 year 1 -2 years Greater than 2 years Fed funds borrowed Borrowings: Less than 1 year 1 - 2 years Greater than 2 years Other liabilities Total Liabilities Equity Capital Total Liabilities and Equity ISGAP DGAP -$17.25 0.516923 Amount ($ millions) $9.00 8.00 20.00 50.00 21.00 13.00 4.00 15.00 40.00 9.00 32.00 1.00 $222.00 $5.00 $227.00 Duration (years) 1.00 0.80 1.00 0.90 0.30 1.80 8.00 0.01 0.40 1.20 12.00 0.00 % wgt Wtd Avg Duration ISL 4.054% 0.041 $1.35 3.604% 0.029 8.00 9.009% 0.090 4.4 22.523% 0.203 50.00 9.459% 0.028 21.00 5.856% 0.105 1.802% 0.144 6.757% 0.001 18.018% 0.072 4.054% 0.049 14.414% 1.730 0.450% 0.000 100.000% 2.491 15.00 40.00 $139.75 Suppose you decide to immunize the bank by issuing long-term debt of $30 million with a duration of X years and using those funds to make variable-rate residential mortgage loans with a duration of 0.50 years. a. What is the duration of the long-term debt that you must issue to bring DGAPK = 0? (0.2 pt.) b. Show the new balance sheet. (0.2 pt.) c. Now, what is your ISGAP? (0.2 pt.) d. Explain the pros and cons of this bank's action. (0.2 pt.)
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To determine the duration of longterm debt required to achieve DGAP 0 we need to calculate the weighted average duration of both assets and liabilitie... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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