1. Consider the following bank balance sheet and the associated interest rates.

Assets                         Amount          Rate Liabilities & Equity              Amount          Rate

Cash                                  $100                   1 yr.  Time deposit                      $620               5%

3yr commercial. Lo an     700                 12%    3 yr. CD                                  300               7%

6yr Treasury bond            200                   8% Total liabilities                          920                       

Equity                                                                                                                 $    80

Total                               1,000          Total                                                      1,000

Calculate the duration for:

1. Commercial loan
2. Treasury bond
3. Certificate of deposit
4. Time deposit
5. Calculate the weighted average durations of assets and liabilities.
6. Determine the expected economic net interest income.
7. What is the bank’s duration GAP?

Suppose that all interest rates increase immediately by 1 percent after the bank contracts for its assets and liabilities.

Calculate: 

a) The durations of assets and liabilities. 

b) The expected economic net interest income. 

c) The bank’s duration GAP. 

d) Market value of the commercial loan, Treasury bond, time deposit and certificate of deposit (round-off values to zero decimals). 

e) The change in the market value of assets, liabilities and equity.