Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

24. The balance sheet for Gotbucks Bank Inc. (GBI) is presented below ($ millions). $ 30 $ 20 50 Assets Cash Federal funds Loans (floating)

image text in transcribed
24. The balance sheet for Gotbucks Bank Inc. (GBI) is presented below ($ millions). $ 30 $ 20 50 Assets Cash Federal funds Loans (floating) Loans (fixed) Total assets Liabilities and Equity Core deposits Federal funds Euro CDs Equity Total liabilities and equity 105 130 20 65 $220 $220 Notes to the balance sheet: The fed funds rate is 8.5 percent, the floating loan rate is LIBOR (London Interbank Offered Rate) + 4 percent, and currently LIBOR is 11 percent. Fixed-rate loans have five year maturities are priced at par, and pay 12 percent annual interest. The principal is repaid at matu: rity. Core deposits are fixed rate for two years at 8 percent paid annually. The principal is repaid at maturity. Euro CDs currently yield 9 percent. a. What is the duration of the fixed-rate loan portfolio of Gotbucks Bank? b. If the duration of the floating-rate loans and fed funds is 0.36 year, what is the duration of GBI's assets? c. What is the duration of the core deposits if they are priced at par? d. If the duration of the Euro CDs and fed funds liabilities is 0.401 year, what is the duration of GBI's liabilities? e. What is GBI's duration gap? What is its interest rate risk exposure? f. What is the impact on the market value of equity if the relative change in all interest rates is an increase of 1 percent (100 basis points)? Note that the relative change in interest rates is AR/(1 + R = 0.01. g. What is the impact on the market value of equity if the relative change in all interest rates is a decrease of 0.5 percent (-50 basis points) h. What variables are available to GBI to immunize the bank? How much would each variable need to change to get DGAP to equal zero

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Freedom

Authors: Timothy Turner

1st Edition

1801573573, 978-1801573573

More Books

Students also viewed these Finance questions