Question
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
- 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
- Liabilities
Checking &Savings Acct210 million0
CD's150 million2
Long-term Bonds90 million10
Value(liabilities) = 450 million D(liab.) = ??? years
- 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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