What is the duration GAP of a bank whose assets and liabilities are as follows? Assets:...

What is the duration GAP of a bank whose assets and liabilities are as follows? Assets: Cash $48 million Short-term Investments (D=0.8) $149 million Short-term Loans (D=0.6) $201 million Long-term Investments (D=4.2) $254 million Long-term Loans (D=6.2) $398 million Liabilities: Demand Deposits $46 million Short-term Interest-bearing Deposits (D=0.3) $595 million CDs (D=2.5) $148 million Borrowed funds (D=0.1) $153 million Round to three decimals.

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Expert Solution

Computation of Duration Gap:
Assets				Liabilities
Particulars	Asset ( in million)	Duration	A*D	Particulars	Liabilites (in millions)	Duration	L*D
Cash	$48	0	$0	Demand Deposits	$46	0	$0
Short term Investment	$149	0.8	$119	Short term interest bearing deposits	$595	0.3	$179
Short term Loans	$201	0.6	$121	CDs	$148	2.5	$370
Long term Investment	$254	4.2	$1,067	Borrowed funds	$153	0.1	$15
Long term loan	$398	6.2	$2,468
Total Asset	$1,050		$3,774	Total Liabilites	$942		$564

Duration of Asset	3.59447619
Duration of Liabilites	0.5985138
Duration Gap	2.99596239

Duration of asset = D*A/total asset

Duration of liabilites = D*L/total liabilites

Duration gap = duration of asset - duration of liabilites

= 2.996

jeff jeffy answered 1 year ago

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