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Question 3 ( in - slide calculation of duration and duration gap ) Solve the following numerical question on duration and duration gap. Show how
Question inslide calculation of duration and duration gap
Solve the following numerical question on duration and duration gap. Show how you arrive at your answers.
Bank ABC has the following bondlike loans:
Loan : $m principal, years maturity, annual interest payment fixed at
Loan : $m principal, years maturity, annual interest payment fixed at
The market interest rate is now at What is the duration of the banks loan portfolio? If the market interest rate increases by now, what will be the percentage change of the present value of the portfolio?
Furthermore, it has $m of liabilities at market value with a duration of years. How much will the value of the bank change due to the change in interest rate?
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