Question
The following is an FI's balance sheet ($millions). Assets Amount Duration Liabilities Amount Duration Cash $1 0 years Dem. Deposits $100 0 years FF&RP 20
The following is an FI's balance sheet ($millions).
Assets | Amount | Duration | Liabilities | Amount | Duration |
Cash | $1 | 0 years | Dem. Deposits | $100 | 0 years |
FF&RP | 20 | 0.01 years | FF&RP | 50 | 0.01 years |
Munis | 50 | x | CDs | 90 | 1.0 years |
Loans | 200 | y | Net Worth | 31 |
|
Notes to Balance Sheet. Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.
a). What will be the impact, if any, on the market value of the bank's equity if all interest rates increase by 75 basis points? (i.e., DR/(1 + R) = 0.0075) .
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