FIR 4720/672 Management of Finanoi 21 O dober Quiz 9 (20 Poi nts) Angus Bank has invested in assets of $1 nillion a 30-year, 3.25 percent sen'iannual coupon Treasury bond selling at par. The assets are financed with acuity and a $900,000, two-year, 225 percent seniannual coupon capital note selling at par. a. What is the duration o'fthis Treasury Bond (please attach an Excel spreadsheet for your calculation of duration). b. What is the duration ofthe capital note? Two-gear Cag'tal Note (values in thousands of $5) Par value = $900,000 Coupon rate = 225% Seniannual payments R = 225% Maturity = 2years 1 CF, DF. CF. x DF. CF.x DF. x1 0.5 $10,125 1 10,125 1.5 10,125 2 910,125 Duration = $__________l$900,000 = __ _____years c. What is the leverage adjusted duration gap of Angus Bank? The leverage- aciusted duration gap can be found as follows' Leverage-adusted duration gap: [DA -D k]=DA -DL($900,000/$1,000,000)= d. What is the irrpact on quity value if the relative change in all market interest rates is a increase of 50 basis points? Note: The relative change in interest rates is AR/(1+R/2) = 0.11350. The change in net worth using leverage adjusted chration gap is g'ven by: AE=-[DA -DL k] A (AR/(1+R/2) J L What would the duration of the amets need to be to in'rmnize the equity from changes in market interest rates? Hint: lrrTmniz'ng the quity from changes in interest rates requires that the DGAP be 0. Thus, AE=0='[DA 'DL k]=0 :> DA = DLk, of DA =