Question

Suppose the First National Bank of Austin has $500.00 million in total assets with an average asset duration of five years. Assume that the bank’s liabilities are comprised of $86.75 million of demand deposits and $163.75 million in bonds with a 4.00% coupon rate (which pays annually) and a five year time-to-maturity. Further assume that current market interest rates are at 9.00% per annum. Show work. (a.) Calculate the duration of the bank’s bonds. (b.) What is this bank’s duration gap? Is the bank asset- or liability-sensitive? (c.) If interest rates are expected to decrease to 8.00%, approximate the bank’s change in net worth in millions.

Answer #1

Suppose the First National Bank of Duluth has $500.00 million in
total assets with an average asset duration of ﬁve years. Assume
that the bank’s liabilities are comprised of $86.75 million of
demand deposits and $163.75 million in bonds with a 4.00% coupon
rate (which pays annually) and a ﬁve year time-to-maturity. Further
assume that current market interest rates are at 9.00% per
annum.
What is this bank’s duration gap? Is the bank asset- or
liability-sensitive?

Suppose the First National Bank of Duluth has $500.00 million
in total assets with an average asset duration of five years.
Assume that the bank’s liabilities are comprised of $86.75 million
of demand deposits and $163.75 million in bonds with a 4.00% coupon
rate (which pays annually) and a five year time-to-maturity.
Further assume that current market interest rates are at 9.00% per
annum.
Calculate the duration of the bank’s bonds. (Using Duration
formula, Not Excel)

3. Consider a bank with the following data: • Interest sensitive
assets = $250 million • Interest sensitive liabilities = $300
million a. Calculate the IS-GAP, Relative IS-GAP and IS Ratio of
the firm b. Comment on whether the bank has a positive or negative
gap and is asset or liability sensitive. Why? c. What happens to
the net interest margin (NIM) of this bank when interest rates
increase? d. If the ALM team intentionally take this position, what
do...

Consider a bank with the following data:
Interest sensitive assets = $250 million
Interest sensitive liabilities = $300 million
Calculate the IS-GAP, Relative IS-GAP and IS Ratio of the
firm
Comment on whether the bank has a positive or negative gap and
is asset or liability sensitive. Why?
What happens to the net interest margin (NIM) of this bank when
interest rates increase?
If the ALM team intentionally take this position, what do you
think their expectations are concerning the...

1-) Consider a bank with the following data:
• Interest sensitive assets = $250 million
• Interest sensitive liabilities = $300 million
a. Calculate the IS-GAP, Relative IS-GAP and IS
Ratio of the firm (3 points)
b. Comment on whether the bank has a positive or
negative gap and is asset or liability sensitive. Why? (2
points)
c. What happens to the net interest margin (NIM) of
this bank when interest rates increase? (5 points)
d. If the ALM team...

X Bank holds Assets and Liabilities whose average durations and
dollar amounts are as shown in the following table:
Asset and Liability Items
Avg. duration in years
Dollar amount in millions
Investment Grade Bonds
10
$50
Non-deposit Borrowings
0.10
20
Consumer Loans
7
250
Commercial Loans
4
400
Deposits
1.10
600
Subordinated Notes
2.80
80
Treasury Bonds
8.25
120
Calculate the weighted-adjusted duration of X’s assets
portfolio and liability portfolio.
What is the leverage-adjusted duration gap?
If the ALM...

1.
Suppose Bank A has $40 million in rate-sensitive assets, $70
million in fixed rate assets, $70 million in rate sensitive
liabilities, and $40 million in fixed rate liabilities and equity
capital. (10 points)
a. What is the value of the bank’s
GAP?
b. Calculate the change in Bank A’s
profit as a result of a decrease in market interest rates of 3
percentage points.
c. Calculate the change in
Bank A’s profit as a result of an increase in...

please show work thank you!!!!!!!
1. Bank of RGV is a successful
regional bank with common equity share outstanding 1 million. It
pays $10 dividend each year and expected to grow 5% in period 1.
The appropriate discount rate to reflect shareholder risk is 10%.
Answer below question using below data pertains to Bank of RGV:
Below numbers are in 1000’s.
Balance
sheet
Income statement
Cash
$100
Interest income
$400
Securities investments
$600
interest expense...

1. Define adverse selection.
2. Assets = $100 million, Liabilities = $70 million, Average
asset duration = 3 years, Average liability duration = 2 years.
Suppose the interest rate decreases by 4%. What will be change in
net worth (in dollar)?
3.Explain how price level affects exchange rates in the long
run?
4.Do the duration analysis based on the following
information.
5.If a bank’s liabilities are $90 million and assets are $70
million, calculate the change in bank profit in...

A savings bank’s weighted average asset duration is 7 years.
Its total liabilities amount to $900 million, while its assets
total $1 billion.
What is the dollar-weighted duration of the bank’s liability
portfolio if it has zero leverage adjusted duration
gap?
Does zero duration gap mean the bank has hedged the interest
rate risk perfectly? Comment on it by referring to the problems
with duration.

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