Question
National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. Assets Amount ($ millions) Annual
National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.
| Assets | Amount ($ millions) | Annual Rate | Liabilities | Amount ($ millions) | Annual Rate |
| 1-year bonds | $60 | 7% | 1-year CD | $50 | 5% |
| 10-year loan | $40 | 12% | 2-year CD | $40 | 6% |
|
|
|
| Equity | $10 |
|
| Total | $100 |
| Total | $100 |
|
*Calculatiosn for all parts
a. What is the weighted average maturity of assets?
b. What is the weighted average maturity of liabilities?
c. What is this FI's maturity gap?
d. What is market value of the one-year bond if all market interest rates increase by
2 percent?
e. What is market value of the ten-year loan if all market interest rates increase by 2
percent?
f. What is market value of the two-year CD if all market interest rates increase by 2
percent?
g. What is the impact on the FI's equity of a 2 percent overall increase in market
interest rates on all fixed-rate instruments? Briefly discuss your results.
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