The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value.

Asset		Liability
5 year semi-annual 6.45%pa coupon	250	6 months treasury bills	250
bond
10 year 3.5% annual coupon bond	100	3 year semi annual coupon 5.50% bond	200
10 year treasury bond 7.5 % semi	350	6 year annual coupon (6.30%pa) bond	200
annual coupon
		Equity	50
	700		700

5. Assume current market yield is flat at 6.5% p.a. What is the duration gap of the bank

(6 marks)

Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 1.5%p.a.?....................................................... (4 marks)

7. What is the maturity gap of the bank (2 marks)

PART C (8 marks) -- word limit : 500 words

The Basel Banking supervision committee has proposed the Basle III standards.

Compare and discuss the differences between Basle II and the Basle III.

What are some of the requirements (and issues) faced by the financial institutions in trying to meet these new requirements?

(8 marks)