Suppose that your bank currently operates with a DGAP of 2.2 years. Which of the following will
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a. Issue a one year zero coupon CD to a customer and use the proceeds to buy a three year zero coupon Treasury bond.
b. Sell $ 5 million in one year bullet (single payment) loans and buy three month Treasury bills.
c. Obtain two year funding from the Federal Home Loan Bank and lend the proceeds overnight in the federal funds market.
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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The objective is to reduce risk with DGAP 0 a This transaction increases risk because the ass...View the full answer
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