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Golding Bank has $2.0 billion cash, $10.0 billion in commercial loans with an average duration of...

Golding Bank has $2.0 billion cash, $10.0 billion in commercial loans with an average duration of 0.50 years; $20.0 billion in consumer loans with an average duration of 1.8 years; and $20.0 billion in U.S. Treasury bonds with an average duration of 5 years. What will be the bank’s dollar-weighted asset portfolio duration?

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Answer #1

Total Value of Assets Portfolio = $10 billion + $20 billion + $ 20 billion= $50 billion

Duration of Weighted Asset Portfolio= (10/50)0.5 + (20/50)1.8 + (20/50)5 = (0.2)0.5 + (0.4)1.8 + (0.4)5 = 0.01 + 0.72 + 2 = 2.73 years

Duration of Weighted Asset Portfolio = 2.73 years

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