Warrabi Bank has cash inflows generated from a portfolio of loans and assets, cash outflows required...

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Warrabi Bank has cash inflows generated from a portfolio of loans and assets, cash outflows required by deposits and money market borrowings as follows: Expected cash inflows (Assets) $1,275,600 $ 746,872 $ 341,555 Expected cash outflows (Liabilities) $1,295,500 Annual period cash in/out flows ... are expected and made 1st year $ 831,454 2nd year $ 123,897 3rd year $ 62,482 $ 1,005 4th year $ 9,871 n.a. 5th year Required: a. What is the duration of Warrabi Bank's portfolio of earnings generated from loans and assets if the interest rate applicable is 4.25%? (4 marks) b. What is the duration of Warrabi Bank's portfolio of borrowings from its deposits and money market borrowings if the interest rate applicable is 4.25%? (4 marks) c. What is the duration gap for Warrabi Bank? What does this duration gap mean? (5 marks) d. How could Warrabi Bank manage this duration gap that obtained in step c) above? (5 marks) e. Suppose interest rates suddenly rise to 4.75%. And if Warrabi Bank has total assets of $20 billion, total liabilities of $18 billion, by how much would the value of Warrabi's net worth change as this increased interest rates? (4 marks) f. Suppose on the other hand, that interest rates decline from 4.25% to 3.5%. What happens to the value of Warrabi's net worth? (2 marks) g. What position in futures contract or option contracts could be used to deal with the situation we found out from Step e) or Step f)? (2 marks) h. In response to the above scenario. Suppose Warrabi Bank find a Treasury Bond futures in the market, which are currently quoted at $112 531.25 per $100 000 contract and have a duration of 10.36 years. Find the number of futures contracts will Warrabi Bank need to cover its overall exposure. (2 marks) i. What additional issues should Warrabi Bank consider in choosing between Treasury Bond and T-bill futures contracts? (2 marks) Warrabi Bank has cash inflows generated from a portfolio of loans and assets, cash outflows required by deposits and money market borrowings as follows: Expected cash inflows (Assets) $1,275,600 $ 746,872 $ 341,555 Expected cash outflows (Liabilities) $1,295,500 Annual period cash in/out flows ... are expected and made 1st year $ 831,454 2nd year $ 123,897 3rd year $ 62,482 $ 1,005 4th year $ 9,871 n.a. 5th year Required: a. What is the duration of Warrabi Bank's portfolio of earnings generated from loans and assets if the interest rate applicable is 4.25%? (4 marks) b. What is the duration of Warrabi Bank's portfolio of borrowings from its deposits and money market borrowings if the interest rate applicable is 4.25%? (4 marks) c. What is the duration gap for Warrabi Bank? What does this duration gap mean? (5 marks) d. How could Warrabi Bank manage this duration gap that obtained in step c) above? (5 marks) e. Suppose interest rates suddenly rise to 4.75%. And if Warrabi Bank has total assets of $20 billion, total liabilities of $18 billion, by how much would the value of Warrabi's net worth change as this increased interest rates? (4 marks) f. Suppose on the other hand, that interest rates decline from 4.25% to 3.5%. What happens to the value of Warrabi's net worth? (2 marks) g. What position in futures contract or option contracts could be used to deal with the situation we found out from Step e) or Step f)? (2 marks) h. In response to the above scenario. Suppose Warrabi Bank find a Treasury Bond futures in the market, which are currently quoted at $112 531.25 per $100 000 contract and have a duration of 10.36 years. Find the number of futures contracts will Warrabi Bank need to cover its overall exposure. (2 marks) i. What additional issues should Warrabi Bank consider in choosing between Treasury Bond and T-bill futures contracts? (2 marks)