Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3. After some time, the bank from Question 1 was acquired by another bank and transformed into a digital banking subsidiary, keeping its brand name

image text in transcribed
image text in transcribed
3. After some time, the bank from Question 1 was acquired by another bank and transformed into a digital banking subsidiary, keeping its brand name but without any premises. Its updated bank balance sheet in the first year of business operations (following the restructuring) is presented below. The fixed-rate mortgages on the balance sheet are with maturity T=5 years, par (face) value of $40, and 14% interest (annual). Any principals are paid fully at maturity T. The time deposits are with maturity T=2 years, par (face) value of $165, and earn 6% per annum to deposit holders. d) Estimate the duration of the bank's liabilities if the following information is also available: duration of CDs and Other borrowings (each) is 0.35. e) Estimate the bank's (leveraged adjusted) duration gap. Explain whether the bank has any interest rate risk exposure and discuss a possible method of immunization (if needed). 3. After some time, the bank from Question 1 was acquired by another bank and transformed into a digital banking subsidiary, keeping its brand name but without any premises. Its updated bank balance sheet in the first year of business operations (following the restructuring) is presented below. The fixed-rate mortgages on the balance sheet are with maturity T=5 years, par (face) value of $40, and 14% interest (annual). Any principals are paid fully at maturity T. The time deposits are with maturity T=2 years, par (face) value of $165, and earn 6% per annum to deposit holders. d) Estimate the duration of the bank's liabilities if the following information is also available: duration of CDs and Other borrowings (each) is 0.35. e) Estimate the bank's (leveraged adjusted) duration gap. Explain whether the bank has any interest rate risk exposure and discuss a possible method of immunization (if needed)

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

Quantitative Finance: An Object-Oriented Approach In C++

Authors: Erik Schlogl, Dilip B. Madan

1st Edition

1584884797, 978-1584884798

More Books

Students also viewed these Finance questions

Question

What are the Shock Incarceration and its use in society?

Answered: 1 week ago