Problem: Use the given balance sheet information to answer this question.
Question 1: What is the average duration of all the assets?
Question 2: What is the average duration of all the liabilities?
Question 3: What is the FI's leverage-adjusted duration gap? What is the FI's interest rate risk exposure?
Question 4: If the entire yield curve shifted upward 0.5 percent (i.e., Î"R/(1 + R) =.0050), what is the impact on the FI's market value of equity?
Question 5: If the entire yield curve shifted downward 0.25 percent (i.e., Î"R/(1 + R) = â?'.0025), what is the impact on the FI's market value of equity?
Balance Sheet ($ thousands)
and Duration (in years)
|
|
Duration
|
Amount
|
|
T-bills
|
0.5
|
$ 90
|
|
T-notes
|
0.9
|
55
|
|
T-bonds
|
4.393
|
176
|
|
Loans
|
7
|
2,724
|
|
Deposits
|
1
|
2,092
|
|
Federal funds
|
0.01
|
238
|
|
Equity
|
|
715
|
Notes: Treasury Bonds are five-year maturities paying 6 percent semiannually and selling at par.