Maps New Tab Calculating the duration of a bank's assets and liabilities Assets MV Duration Liabilities Duration Liquid Securities 150 Investments 100 Floating rate loans 400 Fixed rate loans 350 1,000 0.5 years 3.5 years 0.5 years 2 years Deposits Short term CDs Long term CDs Equity Capital MV 400 350 150 100 1,000 O yrs 0.4 yrs 2.5 yrs 150 100 400 350 DA x0.5+ x3.5+ x0.5+ 1000 1000 x 2 - 1.325 years 1000 1000 400 350 150 DL x0+ x 0.4+ -x 2.5 -0.572 years 900 900 900 Explain why the duration of deposits is equal to 0 years in the table above. (ii) Provide an example of how: a. The duration of short-term certificates of deposit can be 0.4 years b. The duration of long-term certificates of deposit can be 2.5 years c. The duration of liquid securities can be 0.5 years d. The duration of investments can be 3.5 years e. The duration of fixed rate loans can be 2 years (iii) Explain why floating rate loans have a low duration (0.5 years in the example above) even though the maturity of the floating rate loans could be very high (for example a 30-year floating rate home loan). DOLL Maps New Tab Calculating the duration of a bank's assets and liabilities Assets MV Duration Liabilities Duration Liquid Securities 150 Investments 100 Floating rate loans 400 Fixed rate loans 350 1,000 0.5 years 3.5 years 0.5 years 2 years Deposits Short term CDs Long term CDs Equity Capital MV 400 350 150 100 1,000 O yrs 0.4 yrs 2.5 yrs 150 100 400 350 DA x0.5+ x3.5+ x0.5+ 1000 1000 x 2 - 1.325 years 1000 1000 400 350 150 DL x0+ x 0.4+ -x 2.5 -0.572 years 900 900 900 Explain why the duration of deposits is equal to 0 years in the table above. (ii) Provide an example of how: a. The duration of short-term certificates of deposit can be 0.4 years b. The duration of long-term certificates of deposit can be 2.5 years c. The duration of liquid securities can be 0.5 years d. The duration of investments can be 3.5 years e. The duration of fixed rate loans can be 2 years (iii) Explain why floating rate loans have a low duration (0.5 years in the example above) even though the maturity of the floating rate loans could be very high (for example a 30-year floating rate home loan). DOLL