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A bank has the following assets and liabilities: i ) Total Assets: $ 1 1 0 million of 1 5 - year loans ( duration
A bank has the following assets and liabilities:
i Total Assets: $ million of year loans duration years;
ii Total Liabilities: $ million of year debt issued to the public duration years
In order to fully immunize the bank's equity from interest rate risk, the risk manager of the bank has decided to restructure the total assets. More specifically, she is hoping that the immunization could be achieved by selling some of the existing year loans and using the proceeds from the sale to purchase year zerocoupon treasury bonds. To make this immunization strategy successful, how much in dollar amount of the existing year loans does the risk manager need to sell?
You can either use a calculator or open Blank Excel Sheet.xlsx to work on this question.
A $ million
B $ million
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