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Consider the following two banks and this original scenario. Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with

Consider the following two banks and this original scenario.

Bank 1 has assets composed solely of a 10-year, 12 percent coupon, $1 million loan with a 12 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1 million CD with a 10 percent yield to maturity (YTM).

Bank 2 has assets composed solely of a 7-year, 12 percent yield to maturity, zero-coupon bond with a current value of $894,006.20 and a maturity value of $1,976,362.88. It is financed with a 10-year, 8.275 percent coupon, $1,000,000 face value CD with a yield to maturity of 10 percent. All securities except the zero-coupon bond pay interest annually.

  1. Return to the original scenario. Compute the duration (D) of each banks assets and liabilities.

Bank 1

DA: _______ DL: ________

Bank 2

DA: _______ DL: ________

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