The balance sheet for Gotbucks Bank, Inc. (GBI), is presented below ($

millions):

Assets Liabilities and Equity

Cash $30 Core deposits $20

Federal funds 20 Federal funds 50

Loans (floating) 105 Euro CDs 130

Loans (fixed) 65 Equity 20

Total assets $220 Total liabilities $220

& equity

Notes to the balance sheet: The fed funds rate is 8.5 percent, the floating

loan rate is LIBOR + 4 percent, and currently LIBOR is 11 percent. Fixed rate

loans have five-year maturities, are priced at par, and pay 12 percent annual

interest. The principal is repaid at maturity. Core deposits are fixed rate for

two years at 8 percent paid annually. The principal is repaid at maturity. Euros

currently yield 9 percent.

a) What is the duration of the fixed-rate loan portfolio of Gotbucks Bank?

b) If the duration of the floating-rate loans and fed funds is 0.36 year, what

is the duration of GBIs 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 fed funds liabilities is 0.401 year, what

is the duration of GBIs liabilities?

e) What is GBIs duration gap? What is its interest rate risk exposure?

f) What is the impact on the market value of equity if the relative change in

all interest rates is an increase of 1 percent (100 basis points)? Note that

the relative change in interest rates is R/(1+R) = 0.01.

g) What is the impact on the market value of equity if the relative change in

all interest rates is a decrease of 0.5 percent (-50 basis points)?

h) What variables are available to GBI to immunize the bank? How much

would each variable need to change to get DGAP equal to zero?