3 The balance sheet for VBN Bank Limited is presented below ($ millions): Assets Liabilities and equity Cash $30 Core deposits $20 Interbank lending $20 Interbank borrowing $50 Loans (floating) $105 Euro CDs $130 Loans (fixed) $65 Equity $20 Total assets $220 Total liabilities and equity $220 Notes to the balance sheet: The interbank cash rate is 8.5 percent, the floating loan rate is (BBR + 4 percent), and currently BBR 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 maturity. 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 VBN? [3 marks] B. If the duration of the floating-rate loans and interbank lending is 0.36 year, what is the duration of VBN's assets? [1 mark] C. What is the duration of the core deposits if they are priced at par? [1 mark] D. If the duration of the euro CDs and interbank borrowings is 0.401 year, what is the duration of VBN's liabilities? [1 mark] E. What is VBN's leverage adjusted duration gap? [1 mark] F. 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? [1 mark] G. What variables are available to VBN to immunise the bank? How much would each variable need to change to get DGAP equal to zero? [2 marks]