Answered step by step
Verified Expert Solution
Question
1 Approved Answer
(S) 250 170 Duration (years) 9.2 5.2 4.5 300 1510 Question 2- Income Gap + Overall Duration Gap [17 marks] (a) Consider the following balance
(S) 250 170 Duration (years) 9.2 5.2 4.5 300 1510 Question 2- Income Gap + Overall Duration Gap [17 marks] (a) Consider the following balance sheet of Banco Credit: Assets Variable rate mortgages Fixed rate mortgages Commercial loans 790 Physical capital Total Liabilities Money market deposits Savings deposits Variable rate CDs Equity 660 Total Assumptions - Fixed rate mortgages repaid in the coming year = 25% - Savings deposits that become rate sensitive in the coming year = 20% - All commercial loans are rate sensitive - All money market deposits are rate sensitive (S) 450 300 100 Duration (year's) 0.8 2.7 1.1 1510 Using income gap analysis, calculate the change in net interest income over the coming year if interest rates increase by 1% from 4% to 5% (4 marks) (b) What is the duration gap for Banco Credit? (4 marks) (c) What is the estimated change in the value of equity (in $s) for Banco Credit if interest rates increase by 1% from 4% to 5%? (4 marks) (d) Explain why a bank with a positive duration gap is estimated to see a fall in the value of its equity when interest rates increase
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started