Use the following to answer Questions $1)15)$

Bank of Regional Business $($$ million$)$Assets Liabilities

$91$ days; T$-$bills $$1501$ year; Certificates of Deposit $$825$

$2$ years; Corporate bonds;

$9\%$ coupon rate; trading at par $$75$

$5$ years; Bonds $$80$

Demand deposits $$60$

$10$ years; Mortgages;

annual floating rate $$500$

Overnight borrowing $$50$

$91$ days; Commercial papers

pure discount $$2505$ years, Business loans;

var rate; reset quarterly $$600$

Equity $$65$

Cash $$5$

Note:

Corporate bonds pay semi$-$annual coupons.

Certificates of Deposit incur annually fixed$-$rate interest at $2\mathrm{.}75\%$ p$.$a$.$ The $5-$year Bonds pay

$8\mathrm{.}5\%$ p$.$a$.$ semi$-$annually with a yield of $7\mathrm{.}5\%$ p$.$a$.$ and have a duration of $4\mathrm{.}1948$ years.

All values are in market value. All assets and liabilities rollover at maturities.

$1)$ What is the bank$$s financial leverage?

$2)$ What is the bank$$s $91-$day cumulative repricing dollar gap?

$3)$ What is the impact on the bank$$s net interest income if interest rates rise by $25$

basis points over the next quarter?

$4)$ What is the $1-$year cumulative repricing dollar gap?

$5)$ What is the impact on the bank$$s net interest income if interest rates fall by $25$

basis points over the next year?

$6)$ How can the bank eliminate its interest rate risk exposure over the next quarter via

direct refinancing which involves equal amount on both sides of the balance

sheet? And what is the dollar amount involved in each of the transactions?

$7)$ What is the duration of the T$-$bills?

$8)$ What is the duration of the Corporate bonds?

$9)$ What is the duration of the Mortgages?

$10)$ What is the duration of the Business loans?

$11)$ What is the duration of the bank$$s assets, DA$?$

$6$

$12)$ What is the duration of the bank$$s liabilities, DL$?$

$13)$ What is the bank$$s duration gap, DG$?$

$14)$ What is the impact on the bank$$s equity values if interest rates fall by $50$ basis

points from $5\%?$

$15)$ How is this bank exposed to $($i$.$e$.$ falling or rising$)$ interest rate changes? How can

the bank use direct refinancing to restructure the maturities of its assets or$/$and

liabilities that would modify the DG and reduce its exposure to interest rate risk?