Principles of Finance-fixed-rate loan
Consider the following balance sheet:
ASSETS LIABILTIES
Cash 30 Core Deposits 20
Fed funds 20 Fed funds 50
Loans (floating) 105 Euro CDs 130
Loans (fixed) 65 Equity 20
TOTAL 220 220
Fed funds rate is 8.5%
Floating loans are 15%
Fixed rate loans selling at par, 5 year maturities, 12% annual coupon.
Core deposits fixed rate for 2 years at 8%.
Euro CDs 9% yield.
a. What is duration of fixed-rate loan portfolio?
b. If duration of floating rate notes is 0.36, what is duration of bank’s assets? (Cash and fed fund assets= 0)
c. What is the duration of the core deposits is they are priced at par?
d. If the duration of fed fund liabilities and Euro CDs is 0.401, what is the duration of the bank’s liabilities?
e. What is the duration gap? If all rates increase by 1% (r/(1+r))=0.01), what is the impact on equity?
Do you need a similar assignment written for you from scratch? We have qualified writers to help you.
You can rest assured of an A+ quality paper that is plagiarism free. Order now for a FREE first Assignment!
Use Discount Code "FREE" for a 100% Discount!
NB: We do not resell papers. Upon ordering, we write an original paper exclusively for you.
