Question

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 $49 million
Short-term Investments (D=0.8) $149 million
Short-term Loans (D=0.6) $204 million
Long-term Investments (D=3.6) $251 million
Long-term Loans (D=6.6) $402 million

Liabilities:
Demand Deposits $50 million
Short-term Interest-bearing Deposits (D=0.4) $600 million
CDs (D=2.4) $149 million
Borrowed funds (D=0.3) $149 million

Round to three decimals.

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Answer #1

Duration GAP = Average value of assets -(Total value of liabilities /total value of assets)*average value of liabilities

Average value of Assets = (Asset1/Total Asset)*D+(Asset2/Total Asset)*D -- for all assets

Average value of liabilities = (Liability1/Total Liabilities)*D+(Liability 2/Total Liabilities)*D -- for all liabilties

Average value of Assets : 3.600379 =(149/1006)*0.8+(204/1006)*.6+(251/1006)*3.6+(402/1006)*6.6

Average value of Liabilities : 0.677532 = (600/948)*0.4+(149/948)*2.4+(149/948)*0.3

Duration GAP = 2.846375 Years (3.600379-(948/1055)*0.677532

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