Font Styles Paragraph QUESTION 3 Use this balance sheet information to answer the following questions: 1.25 YIS Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) Assets Amount Duration Liabilities Amount Duration Cash 150 Core Deposits 2500 90 Day Treasury Bills 300 CDs 1750 1.00 yrs Treasury Bonds 450 Euro CDs Loans (special) 1000 Loans (variable) 1200 Loans (fixed) 2500 Equity 500 1.95 VIS 0.75 yrs 3.25 VIS The variable loans are repriced every 180 days The bank has granted a special loan that has 6 years to maturity and has repayments of $344 50 million at the end of year 1, $234 65 million payment at the end of year 4 $425.45 million payment at the end of year 5 and $149.92 million payment at the end of year 6. The loan is trading at par and the yield to maturity is 4 percent per annum The yield curve is flat, and the interest rate is 4%. The financial institution decides to use a 3-year swap. The swap is composed of a three-year bond with a fixed coupon rate of 4 percent paid annually and a floating-rate bond with duration of approximately zero. Using this approximation you need to calculate the duration of the swap. Using this swap, determine the notional principal of the swap and advise the financial institution on whether it should be a fixed or floating payer Present an explanation including pertinent assumptions of how the swap you have recommended works 1003 a 00) 12:56 PM 2/4/2021 Font Styles Paragraph QUESTION 3 Use this balance sheet information to answer the following questions: 1.25 YIS Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) Assets Amount Duration Liabilities Amount Duration Cash 150 Core Deposits 2500 90 Day Treasury Bills 300 CDs 1750 1.00 yrs Treasury Bonds 450 Euro CDs Loans (special) 1000 Loans (variable) 1200 Loans (fixed) 2500 Equity 500 1.95 VIS 0.75 yrs 3.25 VIS The variable loans are repriced every 180 days The bank has granted a special loan that has 6 years to maturity and has repayments of $344 50 million at the end of year 1, $234 65 million payment at the end of year 4 $425.45 million payment at the end of year 5 and $149.92 million payment at the end of year 6. The loan is trading at par and the yield to maturity is 4 percent per annum The yield curve is flat, and the interest rate is 4%. The financial institution decides to use a 3-year swap. The swap is composed of a three-year bond with a fixed coupon rate of 4 percent paid annually and a floating-rate bond with duration of approximately zero. Using this approximation you need to calculate the duration of the swap. Using this swap, determine the notional principal of the swap and advise the financial institution on whether it should be a fixed or floating payer Present an explanation including pertinent assumptions of how the swap you have recommended works 1003 a 00) 12:56 PM 2/4/2021