Question

In: Accounting

Estimate the duration of Deposit N Bank Balance Sheet Cash = $ 50 Loan M (7%,...

Estimate the duration of Deposit N

Bank Balance Sheet

Cash = $ 50

Loan M (7%, 6 years) = $200

Deposit N (3 years, 2%) = $ 200

Equity = $ 50

Total Assets = $250

Total Liabilities = $ 250

1.94

2.94

3.94

4.94

Solutions

Expert Solution

Answer:

Option B: 2.94

Calculations:

Years Payment PVAF PV Weight Duration
1 $     4.00 0.9804 $     3.92 0.0196 $     0.02
2 $     4.00 0.9612 $     3.84 0.0192 $     0.04
3 $ 204.00 0.9423 $ 192.23 0.9612 $     2.88
Total $ 200.00 1.0000 $     2.94

Working Notes:

Hence, option 'B' is correct and rest all are incorrect.

In case of any doubt or clarification, feel free to come back via comments.

ekkarill92 answered 3 years ago
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