Hedge Row Bank has the following balance sheet (in millions): The duration of the assets is six
Question:
Hedge Row Bank has the following balance sheet (in millions):
The duration of the assets is six years and the duration of the liabilities is four years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year.
(LG 24-2)
a. What is the duration gap for Hedge Row Bank?
b. What is the expected change in net worth for Hedge Row Bank if the forecast is accurate?
Assets $150 Liabilities Equity
$135 15 Total $150 Total $150
c. What will be the effect on net worth if interest rates increase 100 basis points?
d. If the existing interest rate on the liabilities is 6 percent, what will be the effect on net worth of a 1 percent increase in interest rates?AppenduxLO1
Step by Step Answer:
ISE Financial Markets And Institutions
ISBN: 9781265561437
8th International Edition
Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts