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Suppose the First National Bank of Duluth has $500.00 million in total assets with an average asset duration of five years. Assume that the banks
Suppose the First National Bank of Duluth has $500.00 million in total assets with an average asset duration of five years. Assume that the banks liabilities are comprised of $86.75 million of demand deposits and $163.75 million in bonds with a 4.00% coupon rate (which pays annually) and a five year time-to-maturity. Further assume that current market interest rates are at 9.00% per annum.
Calculate the duration of the banks bonds and the bank's duration gap.
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