Problem
County Bank has the following market value balance sheet (in millions, all interest at annual rates). All securities are selling at par equal to book value.
|
Assets
|
Liabilities and Equity
|
|
Cash
|
$20
|
Demand deposits
|
$100
|
|
15-year commercial loan
at 10% interest,
balloon payment
|
$160
|
5-year CDs at
6% interest,
balloon payment
|
$210
|
|
30-year mortgages
8% interest,
balloon payment
|
$300
|
20-year debentures
at 7% interest
|
$120
|
|
|
Equity
|
50
|
|
Total assets
|
$480
|
Total liabilities and equity
|
$480
|
a. What is the maturity gap for County Bank?
b. What will be the maturity gap if the interest rates on all assets and liabilities increase 1 percent?
c. What will happen to the market value of the equity?
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.