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First Island Bank has the following assets and liabilities: i) Total Assets: $100 million of 10-year loans (duration = 7.6 years) ii) Total Liabilities: $80
First Island Bank has the following assets and liabilities: i) Total Assets: $100 million of 10-year loans (duration = 7.6 years) ii) Total Liabilities: $80 million of 5-year debt issued to the public (duration = 3.8 years). In order to fully immunize the bank's equity from interest rate risk, the risk manager of the bank, Tom, has decided to restructure the total assets. More specifically, he is hoping that the immunization could be achieved by selling some of the existing 10-year loans, and using the proceeds from the sale to purchase 1-year zero-coupon treasury bonds. To make this immunization strategy successful, how much of the existing 10-year loan does Tom need to sell? $23.04 million $35.46 million $52.35 million $69.09 million $77.24 million First Island Bank has the following assets and liabilities: i) Total Assets: $100 million of 10-year loans (duration = 7.6 years) ii) Total Liabilities: $80 million of 5-year debt issued to the public (duration = 3.8 years). In order to fully immunize the bank's equity from interest rate risk, the risk manager of the bank, Tom, has decided to restructure the total assets. More specifically, he is hoping that the immunization could be achieved by selling some of the existing 10-year loans, and using the proceeds from the sale to purchase 1-year zero-coupon treasury bonds. To make this immunization strategy successful, how much of the existing 10-year loan does Tom need to sell? $23.04 million $35.46 million $52.35 million $69.09 million $77.24 million
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