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Use the following information to answer Questions #23 to #25. Balance Sheet of the CSUSM Bank AssetsMarket ValueDuration Overnight money50 million0 Treasury Bills100 million1 year

Use the following information to answer Questions #23 to #25.

Balance Sheet of the CSUSM Bank

  1. AssetsMarket ValueDuration

Overnight money50 million0

Treasury Bills100 million1 year

Inventory Loans125 million1.6 years

Industrial Loans75 million3 years

Mortgage Loans150 million20 years

Value(assets) = 500 millionD(assest) = ??? years

  1. Liabilities

Checking &Savings Acct210 million0

CD's150 million2

Long-term Bonds90 million10

Value(liabilities) = 450 million D(liab.) = ??? years

  1. EquityE = 50 million

23. What are the durations of the CSUSM Bank's assets and liabilities? (Hint: the portfolio duration is the market-value weighted average duration of individual assets in the portfolio)

A. D(assest) = 4.33 years; D(liab.) = 2.56 years.

B. D(assest) = 5.75 years; D(liab.) = 2.88 years.

C. D(assest) = 6.48 years; D(liab.) = 3.20 years.

D. D(assest) = 7.05 years; D(liab.) = 2.67 years.

E. D(assest) = 7.55 years; D(liab.) = 3.06 years.

24. Assume the average interest rate (y) is currently 5%; if y suddenly jumps to 6%, what would happen to the value of the CSUSM Bank's equity?

A. The equity value would increase by $10.34 million

B. The equity value would decrease by $14.72 million

C. The equity value would decrease by $19.67 million

D. The equity value would decrease by $22.16 million

E. The equity value would increase by $12.75 million

25. To immunize the equity of the bank from interest rate risk, what should be the asset duration of the bank if the duration of the liabilities remains unchanged?

A. 2.25 years

B. 3.45 years

C. 2.40 years

D. 4.33 years

E. 2.67 years

Need help with question 25 and 24 in particular. I believe 25 is E since it would match the duration of the liabilities. Look forward to your answer!!

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