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. Balance sheet of a VRY-SMPL Bank Asset 5-year semi-annual 6.45% pa coupon bond Liability 250 6-month treasury bills 250 10-year 3.5% annual coupon bond 100 6-year annual coupon (6.30% pa) bond 300 10-year treasury bond 7.5% semi annual coupon 350 Equity 150 Total assets 700 Total liabilities 700 Make sure you answer the following: 1. Assume current market yield is flat at 6.5% p.a. What is the duration gap of the bank? (5 marks). 2. Using the duration gap estimated from Question 5, what will happen to the net worth of the bank if the market yield goes up by 1.5% p.a.? (4 marks). 3. What is the maturity gap of the bank? (1 mark). The book value of Dragon Slayer's bank balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions. Book value of Dragon Slayer's bank balance sheet Asset Equity Cash 6-month T-bills (4.25%) 2-year personal fixed rate loan at 6.50% 3-year T bills (4.85%) 3-year 5.5% semi-annual coupon T-notes (5.25%) 5-year 6.2% semi-annual coupon T-notes (5.75%) 5-year personal loan (11.5%, repriced yearly) 5-year bond 8.0% annual coupon issued by Spanish government with rating credit rating B 10-year commercial loan (12.25% repriced at 6 months) 50 Savings accounts (2.0%) 100 3-month CD (2.50%) 100 9-months CDs (3.85%) 90 1-year term deposit (4.0%) 55 Demand deposits 300 205 150 150 520 100 2-year term deposits (4.30%) 200 350 5-year bonds at 6.75% semiannual interest, balloon payment 250 150 20-year bonds at 7.5% interest, balloon payment 250 730 Subordinate notes: 230 3-year fixed rate (5.65%) 15-year commercial loan at 10% interest (repriced monthly) 20-year sovereign bonds 12.0% annual-coupon issued by Cambodian government with BB rating 20-year mortgages at 8.5% interest (LVR 65%, no mortgage insurance), balloon payment 220 6-year fixed rate (6.00%) 150 Ordinary Equity 390 Preference shares Total assets Retained Earnings 150 20 20 40 2485 Total liability and equity 2485