Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Problem 22-9 (LG 22-3) Use the data provided for Gotbucks Bank, Inc., to answer this question. Gotbucks Bank, Inc. (in $ millions) Assets Liabilities and

Problem 22-9 (LG 22-3)

Use the data provided for Gotbucks Bank, Inc., to answer this question.

Gotbucks Bank, Inc. (in $ millions)
Assets Liabilities and Equity
Cash $ 42 Core deposits $ 49
Federal funds 32 Federal funds 62
Loans (floating) 117 Euro CDs 142
Loans (fixed) 77 Equity 15
Total assets $ 268 Total liabilities and equity $ 268

Notes to the balance sheet: Currently, the fed funds rate is 9.7 percent. Variable-rate loans are priced at 5 percent over LIBOR (currently at 12 percent). Fixed-rate loans are selling at par and have five-year maturities with 13 percent interest paid annually. Assume that fixed rate loans are non-amortizing. Core deposits are all fixed rate for two years at 9 percent paid annually. Euro CDs currently yield 10 percent.

a.

What is the duration of Gotbucks Banks (GBI) fixed-rate loan portfolio if the loans are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Duration years

b.

If the average duration of GBIs floating-rate loans (including fed fund assets) is .48 year, what is the duration of the banks assets? (Note that the duration of cash is zero.) (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Duration (assets) years

c.

What is the duration of GBIs core deposits if they are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Duration (deposits) years

d.

If the duration of GBIs Euro CDs and fed fund liabilities is .413 years, what is the duration of the banks liabilities? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

Duration (liabilities) years

e-1.

What is GBIs duration gap? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

Duration gap years

e-2.

What is the expected change in equity value if all yields increase by 200 basis points? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

Expected change in equity value $

e-3.

Given the equity change in e-2. what is the expected new market value of equity after the interest rate change? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

New market value $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions

Question

To find integral of sin(logx) .

Answered: 1 week ago