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Suppose you are the chief risk officer (CRO) of True-Blue Bank whose $200 billion of assets have an average duration of five years and whose
Suppose you are the chief risk officer (CRO) of True-Blue Bank whose $200 billion of assets have an average duration of five years and whose $175 billion of liabilities have an average duration of three years. Conduct a duration analysis for True Blue Bank and show what will happen to the net worth of the bank if interest rates rise by 5 percentage points. Does the bank face failure? What actions could you take to reduce the banks interest-rate risk? Show your detailed working.
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