Question
The balance sheet for Gotbucks Bank Inc. (GBI), is presented below ($ millions): Assets Liabilities and equity Cash $30 Core deposits $20 Interbank lending $20
The balance sheet for Gotbucks Bank Inc. (GBI), is presented below ($ millions):
Assets | Liabilities and equity | ||
Cash | $30 | Core deposits | $20 |
Interbank lending | $20 | Interbank borrowing | $50 |
Loans (floating) | $105 | Euro CDs | $130 |
T-bonds | $65 | Equity | $20 |
Total assets | $220 | Total liabilities and equity | $220 |
Notes to the balance sheet: The interbank cash rate is 8.5 per cent, the floating loan rate is (BBR+4 per cent), and currently BBR is 11 per cent. T-bonds have five-year maturities, are priced at par, and pay 12 per cent coupon rate. The principal is repaid at maturity. Core deposits are fixed rate for two years at 8 per cent paid annually. The principal is repaid at maturity. Euro CDs currently yield 9 per cent.
(a) What is the duration of the fixed-rate loan portfolio of Gotbucks Bank?
(b) If the duration of the floating-rate loans and interbank lending is 0.36 year, what is the duration of GBI's assets?
(c) What is the duration of the core deposits if they are priced at par?
(d) If the duration of the euro CDs and interbank borrowings is 0.401 year each, what is the duration of GBIs liabilities?
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