Problem
The balance sheet for Got bucks Bank, Inc. (GBI), is presented below ($ millions).
|
Assets
|
Liabilities and Equity
|
|
Cash
|
$30
|
Core deposits
|
$20
|
|
Federal funds
|
20
|
Federal funds
|
50
|
|
Loans (floating)
|
105
|
Euro CDs
|
130
|
|
Loans (fixed)
|
65
|
Equity
|
20
|
|
Total assets
|
$220
|
Total liabilities and equity
|
$220
|
a. What is the duration of the fixed-rate loan portfolio of Got bucks Bank?
b. If the duration of the floating-rate loans and fed funds is 0.36 year,
c. What is the duration of GBI's assets? What is the duration of the core deposits if they are priced at par?
d. If the duration of the Euro CDs and fed funds liabilities is 0.401 year, what is the duration of GBI's liabilities?
e. What is GBI's duration gap? What is its interest rate risk exposure?
f. What is the impact on the market value of equity if the relative change in all interest rates is an increase of 1 percent (100 basis points)? Note that the relative change in interest rates is? R/ (1+R) = 0.01.
g. What is the impact on the market value of equity if the relative change in all interest rates is a decrease of 0.5 percent (-50 basis points)?
h. What variables are available to GBI to immunize the bank? How much would each variable need to change to get DGAP to equal zero?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.