Question

In: Finance

Calculate the leverage-adjusted duration gap of an FI that has assets of $2.9 million invested in...

Calculate the leverage-adjusted duration gap of an FI that has assets of $2.9 million invested in 25-year, 13 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 10.13 years. It has liabilities of $1,090,000 financed through a two-year, 8.00 percent semiannual coupon note selling at par. b. What is the impact on equity values if all interest rates fall 10 basis points—that is, ΔR/(1 + R/2) = –0.0010? (For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

a. Leveraged adjusted duration gap years

b. Change in net worth using leveraged adjusted duration gap

Solutions

Expert Solution

a) 9.42

b) $27,319.58

Explanation:

The result of the above table is as follows :

The result of the above table is as follows :

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Consider the following. a. Calculate the leverage-adjusted duration gap of an FI that has assets of...
Consider the following. a. Calculate the leverage-adjusted duration gap of an FI that has assets of $1.7 million invested in 25-year, 10 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 10.01 years. It has liabilities of $970,000 financed through a two-year, 9.00 percent semiannual coupon note selling at par. b. What is the impact on equity values if all interest rates fall 25 basis points—that is, ΔR/(1 + R/2) = –0.0025? (For all...
Consider the following. a. Calculate the leverage-adjusted duration gap of an FI that has assets of...
Consider the following. a. Calculate the leverage-adjusted duration gap of an FI that has assets of $2.4 million invested in 25-year, 9 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 10.08 years. It has liabilities of $1,040,000 financed through a two-year, 6.50 percent semiannual coupon note selling at par. b. What is the impact on equity values if all interest rates fall 20 basis points—that is, ΔR/(1 + R/2) = –0.0020?
When the duration gap is negative, it means that the duration of assets < duration of...
When the duration gap is negative, it means that the duration of assets < duration of liabilities, so liabilities are more sensitive than assets to interest rate changes. My understanding of this is, that if interest rates fall, you pay less on liabilities, and so income would increase....but then why would equity decrease? Wouldn't equity increase? I'm also confused as to why a negative gap would mean that a rise in interest rates makes equity increase and why a positive...
An FI has a $370 million asset portfolio that has an average duration of 9.1 years....
An FI has a $370 million asset portfolio that has an average duration of 9.1 years. The average duration of its $330 million in liabilities is 7.6 years. Assets and liabilities are yielding 12 percent. The FI uses put options on T-bonds to hedge against unexpected interest rate increases. The average delta (?) of the put options has been estimated at ?0.1 and the average duration of the T-bonds is 9.6 years. The current market value of the T-bonds is...
An FI is having a positive duration gap. What is the FI's interest rate risk exposure...
An FI is having a positive duration gap. What is the FI's interest rate risk exposure and how can it use financial futures to hedge that risk exposure? The FI can hedge its exposure to interest rate decreases by selling future contracts The FI can hedge its exposure to interest rate decreases by buying future contracts The FI can hedge its exposure to interest rate increases by buying future contracts The FI can hedge its exposure to interest rate increases...
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.
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 $52 million Short-term Investments (D=0.4) $153 million Short-term Loans (D=0.8) $201 million Long-term Investments (D=3.8) $247 million Long-term Loans (D=5.2) $400 million Liabilities: Demand Deposits $46 million Short-term Interest-bearing Deposits (D=0.3) $592 million CDs (D=2.8) $148 million Borrowed funds (D=0.1) $151 million Round to three decimals.
Consider the following balance sheet (in millions) for an FI: Assets Liabilities Duration = 13 years...
Consider the following balance sheet (in millions) for an FI: Assets Liabilities Duration = 13 years $ 970 Duration = 5 years $ 900 Equity 70 a. What is the FI’s duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) b. What is the FI’s interest rate risk exposure? c. How can the FI use futures and forward contracts to create a macrohedge? d. What is the impact on the FI’s equity value...
Consider the following balance sheet (in millions) for an FI: Assets Liabilities Duration = 10 years...
Consider the following balance sheet (in millions) for an FI: Assets Liabilities Duration = 10 years $950 Duration = 2 years $860 Equity     90 a)What is the FI's duration gap? b)What is the FI's interest rate risk exposure? c)How can the FI use futures and forward contracts to put on a macrohedge? d) What is the impact on the FI's equity value if the relative change in interest rates is an increase of 1 percent? That is, DR/(1+R) =...
Onshore Bank has $37 million in assets, with risk-adjusted assets of $27 million. Core Equity Tier...
Onshore Bank has $37 million in assets, with risk-adjusted assets of $27 million. Core Equity Tier 1 (CET1) capital is $1,250,000, additional Tier I capital is $480,000, and Tier II capital is $434,000. The current value of the CET1 ratio is 4.63 percent, the Tier I ratio is 6.41 percent, and the total capital ratio is 8.01 percent. Calculate the new value of CET1, Tier I, and total capital ratios for the following transactions. The bank repurchases $117,000 of common...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT