4. Gap and Duration Analysis a. Take the following balance sheet, which of the assets and labilities are rate-sensitive? Which assets and liabilities are not? Liabilities Checkable Deposits Savings Deposits Money Market Accounts Assets Value Value 40 Long-Term Loans Long-Term Securities 75 26 100 Reserves 54 10 25 Short-Term Securities Variable-rate Loans 15 Variable Rate CDs 30 Long-Term CDs 25 b. What is the estimated rate of change of bank profit, in terms of next year's interest rate, conditional on this year's interest rate being 2%? c. Suppose that all the long-term securities that the bank holds mature in 4 years and their interest rate will be 5% in that year. What is the approximate market-value of these long-term securities in 4 years given this year's interest rate is 2%?
4. Gap and Duration Analysis a. Take the following balance sheet, which of the assets and labilities are rate-sensitive? Which assets and liabilities are not? Liabilities Checkable Deposits Savings Deposits Money Market Accounts Assets Value Value 40 Long-Term Loans Long-Term Securities 75 26 100 Reserves 54 10 25 Short-Term Securities Variable-rate Loans 15 Variable Rate CDs 30 Long-Term CDs 25 b. What is the estimated rate of change of bank profit, in terms of next year's interest rate, conditional on this year's interest rate being 2%? c. Suppose that all the long-term securities that the bank holds mature in 4 years and their interest rate will be 5% in that year. What is the approximate market-value of these long-term securities in 4 years given this year's interest rate is 2%?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:4. Gap and Duration Analysis
Take the following balance sheet, which of the assets and labilities are rate-sensitive?
Which assets and liabilities are not?
a.
Assets
Value
Liabilities
Value
Checkable Deposits
Savings Deposits
Money Market
Accounts
40
Long-Term Loans
Long-Term Securities
75
26
100
Reserves
54
10
Variable Rate CDs
25
Short-Term Securities
Variable-rate Loans
15
30
Long-Term CDs
25
b. What is the estimated rate of change of bank profit, in terms of next year's
interest rate, conditional on this year's interest rate being 2%?
c. Suppose that all the long-term securities that the bank holds mature in 4
years and their interest rate will be 5% in that year. What is the approximate
market-value of these long-term securities in 4 years given this year's interest rate is 2%?
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