The assets and liabilities structure of Greezy Bank as at 30 th June is presented in Table
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Question:
The assets and liabilities structure of Greezy Bank as at 30th June is presented in Table 1 below:
Table 1: Asset and Liability Structure
Assets and Liabilities | Market Value ($Millions) | Duration (Years) | Rate of Return (%) |
Cash | 200 | ||
Loans and Advances | 800 | 5.0 | 8.0 |
Corporate Bonds | 1000 | 5.0 | 6.0 |
Sovereign Bonds | 800 | 10.0 | 5.0 |
Long Term Notes | 800 | 7.0 | 3.0 |
Certificate of Deposits | 1200 | 1.5 | 2.0 |
Brokered Deposits | 400 | 0.5 | 1.0 |
Equity | 400 |
Based on the data provided in Table, 1, answer the following questions:
- What is the weighted average duration of the assets and liabilities of Greezy Bank as at 30th June?
- What is the leverage adjusted duration gap of Greezy Bank?
- What is the expected net interest income for Greezy Bank for the period ending 30th June?
- What would be the change in the Economic value of Equity of Greezy Banks as at 30th June if interest rates were to fall by 1%?
- What is your inference on the duration gap and EVE of Greezy Bank during these periods?
- From the results obtained in (b) in what way can you immunize the portfolio?
(3 + 4 +2 +3 +2 +2 = 16)
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