In lectures, we discussed that if the maturity of assets exceeds the maturity of liabilities, then an increase (decrease) in interest rates will cause the value of assets to fall (rise) by more than the value of liabilities.

In lectures, we looked at the spreadsheet on myuni (Go to 'Modules' > 'Spreadsheets Used in Lectures' > 'Lecture2Examples.xlsx') and looked at a numerical example to illustrate this fact.Suppose you are trying to use this spreadsheet (Cells A1: G16) to find the market value of fiveyear loans for CBA and the market value for one year deposits issued by CBA.

(i) What is the interest rate on five-year loans issued by CBA? (ii) What is the interest rate payable by CBA on one-year deposits? (iii) What is the discount rate that you would use in cell B1 to do this valuation? (iv) What do you think are the limitations of this spreadsheet model? (v) Can this model be used to find the market value of equity for CBA?