Question
The numbers provided are in thousands of dollars. All securities are selling at par. Treasury bill $ 90 Time deposits $1,100 Treasury notes $ 55
The numbers provided are in thousands of dollars. All securities are selling at par.
Treasury bill $ 90 Time deposits $1,100
Treasury notes $ 55 Fed funds sold $ 230
Treasury bonds $ 176 Demand deposits $2,500
Loans $4,679 Equity $1,170
Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a 1-year duration and the Fed funds duration is .003 years.
If relative change in all market interest rates is an increase of .5%, calculate the impact on the bank's market value of equity using the duration approximation. (That is, R/(1+R) = .5% percent)
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