Answered step by step
Verified Expert Solution
Question
1 Approved Answer
What is State Banks leverage adjusted duration gap? (Compute D A , D L , leverage adjusted Duration Gap) Use the duration gap model to
- What is State Banks leverage adjusted duration gap? (Compute DA, DL, leverage adjusted Duration Gap)
- Use the duration gap model to calculate the change in equity value if the relative change in all market interest rates is an increase [y/(1+y)] of 1.5%. (Assume that annual coupon payment, i.e., n =1)
State Bank's balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. \begin{tabular}{|c|c|c|c|c|c|c|c|} \hlineAssets & MV & Market Yield (y) & Duration (D) & Liabilities and Equity & MV & Market Yield (y) & Duration (D) \\ \hline Cash & $20 & & & Demand deposits & $250 & & \\ \hline Fed funds (1.05%,0.02) & 150 & 1.05% & 0.02 & MMDAs (2.5%,0.50) & 360 & 2.50% & 0.5 \\ \hline T-bills (5.25%,0.22) & 300 & 5.25% & 0.22 & (no minimum balance requirement) & & & \\ \hline T-bonds (7.50%,7.55) & 200 & 7.50% & 7.55 & CDs (4.3%,0.48) & 715 & 4.30% & 0.48 \\ \hline Consumer loans (6%,2.50) & 900 & 6% & 2.5 & CDs (6%,4.45) & 1,105 & 6% & 4.45 \\ \hline C\&I loans (5.8%,6.85) & 475 & 5.80% & 6.85 & Fed funds (1%,0.02) & 515 & 1% & 0.02 \\ \hline Fixed-rate mortgages (7.85%,19.50) & 1,200 & 0 & 19.5 & Commercial paper (3%,0.45) & 400 & 3% & 0.45 \\ \hline Variable-rate mortgages, & & & & Subordinated debt: & & & \\ \hline repriced @ quarter (6.3%,0.25) & 580 & 6.30% & 0.25 & Fixed-rate (7.25%,6.65) & 200 & 7.25% & 6.65 \\ \hline \multirow[t]{3}{*}{ Premises and equipment } & 120 & & & Total liabilities & $3,545 & & \\ \hline & & & & & & & \\ \hline & & & & Equity & 400 & & \\ \hline Total assets & $3,945 & & & Total liabilities and equity & $3,945 & & \\ \hline \end{tabular}
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started