Question
23-3 Last answer is imporant to get right only matters not --8.1524 or -4.2725 Hedge Row Bank has the following balance sheet (in millions): Assets
23-3 Last answer is imporant to get right only matters not --8.1524 or -4.2725
Hedge Row Bank has the following balance sheet (in millions): |
Assets | $220 | Liabilities | $198 |
Equity | 22 | ||
Total | $220 | Total | $220 |
The duration of the assets is 8 years and the duration of the liabilities is 6 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. |
a. | What is the duration gap for Hedge Row Bank? (Round your answer to 2 decimal places. (e.g., 32.16)) |
Duration gap | years |
b. | What is the expected change in net worth for Hedge Row Bank if the forecast is accurate? (Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) |
Expected change in net worth | $ million |
c. | What will be the effect on net worth if interest rates increase 100 basis points? (Negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 3 decimal places. (e.g., 32.161)) |
Expected change in net worth | $ million |
d. | If the existing interest rate on the liabilities is 6 percent and that on the assets is 10 percent, what will be the effect on net worth of a 1 percent increase in interest rates? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 4 decimal places. (e.g., 32.1616)) |
Expected change in net worth | $ million |
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