a) Estimate the duration of Loan A and Deposit B

b) Using the duration formula estimate the change in the value of the equity if interest rates are expected to decrease by 3%

c) Estimate the convexity of Loan A

d) Using the duration plus convexity estimate the change in the value of Loan A if interest rates are expected to decrease by 3%. There is no need to estimate the convexity of deposit B

2. Estimate the duration of Loan A and Deposit B Cash Loan A (10%, 5 years) Total Assets = $ 50 = $500 = $550 Deposit B (5%, 2 years) = $ 520 Equity = $ 30 Total Liabilities = $ 550 a. Estimate the duration of Loan A and Deposit B. b. Using the duration formula estimate the change in the value of the equity if interest rates are expected to decrease by 3%. c. Estimate the convexity of Loan A. d. Using the duration plus convexity formula estimate the change in the value of Loan A if interest rates are expected to decrease by 3%. There is no need to estimate the convexity of deposit B. 2. Estimate the duration of Loan A and Deposit B Cash Loan A (10%, 5 years) Total Assets = $ 50 = $500 = $550 Deposit B (5%, 2 years) = $ 520 Equity = $ 30 Total Liabilities = $ 550 a. Estimate the duration of Loan A and Deposit B. b. Using the duration formula estimate the change in the value of the equity if interest rates are expected to decrease by 3%. c. Estimate the convexity of Loan A. d. Using the duration plus convexity formula estimate the change in the value of Loan A if interest rates are expected to decrease by 3%. There is no need to estimate the convexity of deposit B