TABLE 1 Duration of the Example Bank's Assets and Liabilities Duration Years) Assets Reserves & Cash...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
TABLE 1 Duration of the Example Bank's Assets and Liabilities Duration Years) Assets Reserves & Cash Items Securities Less than 1 year 1 to 2 years Greater than 2 years Residential Mortgages Variable Rate Fixed Rate (30 years) Commercial Loans Less than 1 year 1 to 2 years Greater than 2 years Physical Capital Average Duration Liabilities Checkable Deposits Money Mkt Deposit Accounts Saving Deposits CDs Variable Rate Less than 1 year 1 to 2 years Greater than 2 years Fed Funds Borrowings Less than 1 year 1 to 2 years Greater than 2 years Average Duration Amount (S Millions) 5 1 4 12 13 5 11 9 20 5 4 4 12 11 13 4 2 6 14 5 5 ક થશે | | | | |/|| 0.4 1.5 2.9 Weighted Duration (Years) Table 1 shows the amounts and durations of the Example Bank's assets and liabilities. The bank manager wants to know: a) What is the average duration of assets and liabilities? (Fill in the Table1) b) What happens to assets and liabilities when interest rates rise from 8% to 12%? c) What is the duration gap for the Example Bank? d) Using the duration gap analysis, find the change in the market value of net worth as a percentage of assets if interest rates rise from 8% to 12%. e) Suppose the bank manager wants to immunize completely the market value of the bank's net worth from interest-rate risk. How can he do that? What are the results, show the calculations and explain? TABLE 1 Duration of the Example Bank's Assets and Liabilities Duration Years) Assets Reserves & Cash Items Securities Less than 1 year 1 to 2 years Greater than 2 years Residential Mortgages Variable Rate Fixed Rate (30 years) Commercial Loans Less than 1 year 1 to 2 years Greater than 2 years Physical Capital Average Duration Liabilities Checkable Deposits Money Mkt Deposit Accounts Saving Deposits CDs Variable Rate Less than 1 year 1 to 2 years Greater than 2 years Fed Funds Borrowings Less than 1 year 1 to 2 years Greater than 2 years Average Duration Amount (S Millions) 5 1 4 12 13 5 11 9 20 5 4 4 12 11 13 4 2 6 14 5 5 ક થશે | | | | |/|| 0.4 1.5 2.9 Weighted Duration (Years) Table 1 shows the amounts and durations of the Example Bank's assets and liabilities. The bank manager wants to know: a) What is the average duration of assets and liabilities? (Fill in the Table1) b) What happens to assets and liabilities when interest rates rise from 8% to 12%? c) What is the duration gap for the Example Bank? d) Using the duration gap analysis, find the change in the market value of net worth as a percentage of assets if interest rates rise from 8% to 12%. e) Suppose the bank manager wants to immunize completely the market value of the bank's net worth from interest-rate risk. How can he do that? What are the results, show the calculations and explain?
Expert Answer:
Answer rating: 100% (QA)
a Average duration of assets and liabilities To calculate the average duration of assets and liabilities we need to multiply the duration of each asset and liability by its corresponding amount and th... View the full answer
Related Book For
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins
Posted Date:
Students also viewed these accounting questions
-
A single-core concentric cable is to be manufactured for a 60kV, 50 Hz transmission system. The dielectric used is paper, which has a maximum permissible safe dielectric stress of 10MV/m rms. and a...
-
A company has daily cash receipts of $150,000. The treasurer of the company has investigated a lockbox service whereby the bank that offers this service will reduce the company?s collection time by...
-
Given the estimates of duration in Table, what will happen to the banks net worth if interest rates rise by 10 percentage points? Will the bank stay in business? Why or whynot? Duration of the First...
-
A 25,000 kW turbo-generator is supplied with 128,000 kg/h of steam at 2.50 MPa and 400C when developing it rated load. There are actually extracted 10,400 kg h at 0.3 MPa and 8300 kg/h at 0.06 MPa....
-
A listener at rest (with respect to the air and the ground) hears a signal of frequency f r from a source moving toward him with a velocity of 15 m/s, due east. If the listener then moves toward the...
-
Discuss the characteristics of industrialism with examples.
-
Teddy Sargent opened an accounting firm on May 1, 2010. During the month of May, the business completed the following transactions: Requirements 1. Open, or set up, the following T-accounts: Cash,...
-
One day, Leslie prepared a new snack to serve at preschool: celery stuffed with ricotta cheese and pineapple. The first time she served it, few children touched it. How can Leslie encourage her...
-
The limit (6+ h)2-36 lim h0 h is the standard expression defining the derivative of some function f(x) at some number a. Find f and a. f(x) = a =
-
1. Marketing analysts use market position maps to display visually the customers perceptions of a firm in relation to its competitors regarding two attributes. Prepare a market position map for Alamo...
-
Johnston, Inc., engaged in the following transactions involving treasury stock. Feb. 10 Purchased for cash 17,000 shares of treasury stock at a price of $29 per share. June 4 Reissued 6,000 shares of...
-
In multiple regression, we can test the significance of the individual regression coefficients by using a t-test, or we can test the joint significance of the coefficients by using an F-test. Is it...
-
Dechow, Inc., issued \(\$ 225,000\) of \(8 \%\), 15 -year bonds at 96 on July 1,2009 . Interest is payable semiannually on December 31 and June 30. Through June 30, 2014, Dechow amortized \$3,000 of...
-
For each of the following situations, indicate the liability amount, if any, that is reported on the balance sheet of Heller, Inc., at December 31, 2014. a. Heller owes \(\$ 110,000\) at year-end...
-
On April 30, one year before maturity, Nissim Company retired \(\$ 100,000\) of its \(9 \%\) bonds payable at the current market price of \(101(101 \%\) of the bond face amount, or \(\$ 100,000...
-
Assume that you are the CEO of a publicly traded company. Your chief financial officer (CFO) informs you that your company will not be able to meet earnings per share targets for the current quarter....
-
1. implement a stack and a queue classes. Keep these classes separate. Then either via a main program or another class, implement the code that will test your classes. The stack and/or queue...
-
The senior management at Davis Watercraft would like to determine if it is possible to improve firm profitability by changing their existing product mix. Currently, the product mix is determined by...
-
Consider the following options available to a mortgage borrower: What is the effective annual rate for eachoption? Interest Loan Rate Type of Diseount Amount (%) Mortgage Points Option 1 $100,000 6.7...
-
Consider the two bonds described below: a. If both bonds had a required return of 8%, what would the bonds prices be? b. Describe what it means if a bond sells at a discount, a premium, and at its...
-
What is the difference between term life insurance and whole life insurance?
-
Determine the effect of self weight on the natural frequency of vibration of the pinned-pinned beam shown in Fig. 2.110. 1 2 M + Uniform beam flexural stiffness = El total weight-mg FIGURE 2.110...
-
Use Rayleigh's method to solve Problem 2.13. Data From Problem 2.13:- Find the natural frequency of the pulley system shown in Fig. 2.56 by neglecting the friction and the masses of the pulleys. 0000...
-
Use Rayleigh's method to solve Problem 2.7. Data From Problem 2.7:- Three springs and a mass are attached to a rigid, weightless bar \(P Q\) as shown in Fig. 2.51. Find the natural frequency of...
The Passive Income Skills How To Make Over $100 Daily 1st Edition - ISBN: 979-8840964200 - Free Book
Study smarter with the SolutionInn App