Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Use the data provided for Gotbucks Bank, Inc., to answer this question. Gotbucks Bank, Inc. (in $ millions) Assets Value Liabilities Value Cash $50 Core

Use the data provided for Gotbucks Bank, Inc., to answer this question.

Gotbucks Bank, Inc. (in $ millions)

Assets Value Liabilities Value
Cash $50 Core Deposits 50
Federal Funds 40 Federal Funds 70
Loans Floating 125 Euro CD's 150
Loans (Fixed) 85 Equity 30
Total Assets 300 Total Liabilities & Equity 300

Notes to the balance sheet: Currently, the fed funds rate is 10.5 percent. Variable-rate loans are priced at 3 percent over LIBOR (currently at 13 percent). Fixed-rate loans are selling at par and have five-year maturities with 14 percent interest paid annually. Assume that fixed rate loans are non-amortizing. Core deposits are all fixed rate for two years at 10 percent paid annually. Euro CDs currently yield 11 percent.

a. What is the duration of Gotbucks Banks (GBI) fixed-rate loan portfolio if the loans are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) Duration years ________

b. If the average duration of GBIs floating-rate loans (including fed fund assets) is .56 year, what is the duration of the banks assets? (Note that the duration of cash is zero.) (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) Duration (assets) years ________

c. What is the duration of GBIs core deposits if they are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) Duration (deposits) years _________

d. If the duration of GBIs Euro CDs and fed fund liabilities is .421 years, what is the duration of the banks liabilities? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) Duration (liabilities) years _______

e-1. What is GBIs duration gap? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) Duration gap years _______

e-2. What is the expected change in equity value if all yields increase by 200 basis points? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.) Expected change in equity value $ _________

e-3. Given the equity change in e-2. what is the expected new market value of equity after the interest rate change? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.) New market value $_______

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Health Care Finance Basic Tools For Nonfinancial Managers

Authors: Judith J. Baker, R.W. Baker, Neil R. Dworkin

5th Edition

1284118215, 978-1284118216

More Books

Students also viewed these Finance questions