The following balance sheet information is available (amounts in thousands of dollars and duration in years) for
Question:
The following balance sheet information is available (amounts in thousands of dollars and duration in years) for a financial institution:
Amount Duration T-bills T-notes T-bonds Loans Deposits Federal funds Equity
$ 90 55 176 2,724 2,092 238 715 0.50 0.90 x
7.00 1.00 0.01 Treasury bonds are five-year maturities paying 6 percent semiannually and selling at par.
a. What is the duration of the T-bond portfolio?
b. What is the average duration of all the assets?
c. What is the average duration of all the liabilities?
d. What is the leverage adjusted duration gap? What is the interest rate risk exposure?
e. What is the forecasted impact on the market value of equity caused by a relative upward shift in the entire yield curve of 0.5 percent [i.e.,
Δ R /(1 R ) 0.0050]?
f. If the yield curve shifts downward 0.25 percent [i.e., Δ R /(1 R ) 0.0025], what is the forecasted impact on the market value of equity?
g. What variables are available to the financial institution to immunize the balance sheet? How much would each variable need to change to get DGAP to equal 0?
Step by Step Answer:
Financial Institutions Management
ISBN: 9780078034800
8th Edition
Authors: Anthony Saunders, Marcia Cornett