PART B The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value. Asset (Smil) 2-year annual 6.45%pa coupon bond $200 Liability ($mil) $200 12-year treasury bonds coupon 5.50%p.a. $150 10-year semi-annual coupon 6.30%pa bond $350 Equity $300 6-year 3.5%pa semi-annual coupon bond 15-year treasury bond 7.5 % annual coupon bond $200 $700 $700 4. Assume current market yield is flat at 3.0% p.a. What is the duration gap of the bank? (3 marks) 5. Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 2.5%p.a.?.......... (2 marks) 6. What is the maturity gap of the bank (1 marks) Some notes: Question 1, 2, 3 - Read Chapter 5. Or refer tutorial (topic 5) question 16 Questions 2 and 3 - There is no word limit. However, if you know the key issues, you should be able to explain your answer within the 500 word limit. Question 4, To avoid any confusion, please use the following link from APRA for conversion purpose. You mainly only require to refer to Attachment A and Attachment F. http://www.apra.gov.au/adi/PrudentialFramework/Documents/Basel-Il-Prudential-Standard-APS-112-January-2013).pdf PART B The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value. Asset (Smil) 2-year annual 6.45%pa coupon bond $200 Liability ($mil) $200 12-year treasury bonds coupon 5.50%p.a. $150 10-year semi-annual coupon 6.30%pa bond $350 Equity $300 6-year 3.5%pa semi-annual coupon bond 15-year treasury bond 7.5 % annual coupon bond $200 $700 $700 4. Assume current market yield is flat at 3.0% p.a. What is the duration gap of the bank? (3 marks) 5. Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 2.5%p.a.?.......... (2 marks) 6. What is the maturity gap of the bank (1 marks) Some notes: Question 1, 2, 3 - Read Chapter 5. Or refer tutorial (topic 5) question 16 Questions 2 and 3 - There is no word limit. However, if you know the key issues, you should be able to explain your answer within the 500 word limit. Question 4, To avoid any confusion, please use the following link from APRA for conversion purpose. You mainly only require to refer to Attachment A and Attachment F. http://www.apra.gov.au/adi/PrudentialFramework/Documents/Basel-Il-Prudential-Standard-APS-112-January-2013).pdf
