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For problems 2 through 5 refer to the following balance sheeet: ASSETS                              &nbs

For problems 2 through 5 refer to the following balance sheeet:

ASSETS                                                                   LIABILTIES

Cash                                   20                                Core Deposits               60

Fed funds                           30                                Fed funds                     50

Loans (floating)                   80                                Euro CDs                       30

Loans (fixed)                       40                                Equity                           30

TOTAL                                170                                                                  170

The fixed rate loans are 10 year, 8% (annual) coupon bonds with a yield of 6%.

Cash and fed funds have a 0 duration.

Floating loans have a duration of 1.0.

All liabilities have a duration of 0.50.

2.  What is the duration of the assets?  (3)

3.  What is the duration of the liabilities?  (3)

4.  What is the duration gap?  

5.  If all rates increase by 2%, what is the approximate percentage change in equity?

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