1.Use the following information about a hypothetical government security dealer named MP Jorganson to answer parts

(a) to (e). (Market yields are in parentheses.)

What is the repricing or funding gap if the planning period is 30 days? 91 days? Two years? (Recall that cash is a non-interest-earning asset.)
What is the impact over the next 30 days on net interest income if all interest rates rise by 50 basis points?
If the duration of assets is 3.41 years and the duration of liabilities is 3.5 years, what is MP Jorganson’s duration gap?
What conclusions regarding MP Jorganson’s interest rate risk exposure can you draw from the duration gap in your answer to question (c)? From the repricing or funding gap (30 days’ planning period) in your answer to question (a)?
e Approximately how will the market value of the Treasury Note portfolio change if all interest rates increase by 50 basis points? LO 5.3, 5.4

Transcribed Image Text:

MP Jorganson Assets Cash T-notes 1 month (7.05%) T-notes: 3 months (7.25%) $m Liabilities $m 10 Overnight interbank borrowing (7.00%) 170 75 7-year fixed-rate subordinated debt (8.55%) 150 75 T-bonds: 2-year (7.50%) 50 Equity 15 T-bonds: 10-year (8.96%) 100 Corporate bonds: 5-year maturity with interest reset every 3 months (8.20%) Total assets 25 335 Total liabilities and equity 335