A bank has an average asset duration of 4.2 years and an average liability duration of 2.4 years.

A bank has an average asset duration of 4.2 years and an average liability duration of 2.4 years. This bank has total assets of $650 million and total liabilities of $420 million. Currently, market interest rates are 7 percent. If interest rates fall by 1 percent (to 6 percent), what is this bank's change in net worth?

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

1. A bank has an average asset duration of 4 years and an average liability duration...

1. A bank has an average asset duration of 4 years and an average liability duration of 1.5 years. This bank has total assets of $500 million and total liabilities of $450 million. Currently, market interest rates are 10 percent. If interest rates rise by 1 percent (to 11 percent), what is this bank's change in net worth? a. net worth will decrease by $12.05 million b. net worth will decrease by $15.45 million c. net worth will increase by...

4. ) Stillwater Bank reports an average asset duration of 3.25 years and an average liability...

4. ) Stillwater Bank reports an average asset duration of 3.25 years and an average liability duration of 1.75 years. Liabilities are $485 million, while assets total $512 million. Suppose that interest rates are 6% but rise to 7.5%. What will happen to Stillwater's net worth if interest rates rise?

Banque Langenberg reports an average asset duration of 7 years and an average liability duration of...

Banque Langenberg reports an average asset duration of 7 years and an average liability duration of 4 years. In it's latest report the bank recorded total assets of $1.8 billion and total liabilities of $1.5 billion. Initially the interest rate is 5.0%. Average asset duration Average liability duration Total assets Total liabilities Initial interest rate Interest rate after change Results Change in interest rates 0.00% Change in net worth 0 What is the impact on net worth if the interest...

Stilwater Bank & Trust Company has an average asset duration of 4.25 years and an average...

Stilwater Bank & Trust Company has an average asset duration of 4.25 years and an average liability duration of 2.75 years. Its liabilities amount to $580 million, while its assets total $620 million. (1) What is the leverage-adjusted duration gap? (2) Now suppose that interest rates were 6 percent and then rise to 8 percent. What will be the change in the value of the Stilwater Bank's net worth as a result of the increase in interest rates?

1. Suppose a bank has an asset duration of 4 years and a liability duration of 2.75 years. This bank has $1,050 million in assets and $780 million in liabilities.

1. Suppose a bank has an asset duration of 4 years and a liability duration of 2.75 years. This bank has $1,050 million in assets and $780 million in liabilities. They are planning on trading in a Treasury bond future which has a duration of 7.5 years and which is selling right now for $98,500 for a $100,000 contract. How many futures contracts does this bank need to fully hedge itself against interest rate risk? 2. Suppose a Eurodollar...

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...

The Raymond Burr National Bank has $1,000 in assets with an average duration of 5 years. This ban...

The Raymond Burr National Bank has $1,000 in assets with an average duration of 5 years. This bank has $800 in liabilities with an average duration of 6.25 years. Market interest rates start at 6 percent and fall by 1 percent. If interest rates on both assets and liabilities decrease by 2 percent in the next 90 days, what should happen to this bank's net interest margin? Please show your steps in solving this problem without using Excel.

The average duration of the loans is 10 years. The average duration of the deposits is...

The average duration of the loans is 10 years. The average duration of the deposits is 3 years. Consumer Loans $50 million Deposits $235 million Commercial Loans $200 million Equity $15 million Total Assets $250 million Total Liabilities & Equity $250 million The bank’s manager expects a 1 percent increase in interest rates from the current rates of 10 percent. Given such expectations, 1) what is the number of T-bond futures contracts necessary to hedge the balance sheet if the...

If the duration of a bond being discounted a 4.2% is 4.9 years, and interest rates...

If the duration of a bond being discounted a 4.2% is 4.9 years, and interest rates on comparable debt decrease by 1.7%, by what percentage will the price rise (+) or fall (-)? (Your answer is in percentage terms - 4 digits, and should be positive for an increase in price, and negative for a decline in price.)

A bank has the following asset and liability portfolios. Assets Liabilities and Capital Firm (in billion...

A bank has the following asset and liability portfolios. Assets Liabilities and Capital Firm (in billion $) Industry Firm (in billion $) Industry Required reserves 3 4% Demand deposits 25 15% Commercial loans NOW accounts 8 10% Floating-rate 30 20% MMDAs 17 20% Fixed-rate 20 11% CDs Total 50 31% Short-term 5 35% Consumer loans 10 20% From 1 to 5 years 30 10% Mortgages Total 35 45% Floating-rate 10 7% Long-term bonds 5 3% Fixed-rate 5 3% Capital 10...

Subjects