ASSETS LIABILITIES/EQUITY ACCOUNT Treasury Bills $90 Time Deposits $1,100 Treasury Notes $55 Short-term borrowings $230 Treasury Bonds $176 Demand Deposits $2,500 Loans $4,679 Equity $1,170 Notes: All Treasury bills have three months until maturity (hint: what is the duration of a zero coupon instrument such as this three-month Treasury bill). The Treasury notes portion of The Loop GAP Bank securities portfolio consists of 2-year bonds paying an annual coupon of 8 percent and selling at par (hint: don’t worry about semi-annual compounding). Treasury bond portion of the securities portfolio has a duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a one year duration, short-term borrowings have a 0.005 year duration, and demand deposits a zero year duration. What is the duration of the bank's Treasury notes? What is the duration of the bank's Treasury portfolio? What is the bank's duration gap?
LOOP GAP Bank, Inc. ($000)
ASSETS LIABILITIES/EQUITY ACCOUNT
Treasury Bills $90 Time Deposits $1,100
Treasury Notes $55 Short-term borrowings $230
Treasury Bonds $176 Demand Deposits $2,500
Loans $4,679 Equity $1,170
Notes: All Treasury bills have three months until maturity (hint: what is the duration of a zero coupon instrument such as this three-month Treasury bill). The Treasury notes portion of The Loop GAP Bank securities portfolio consists of 2-year bonds paying an annual coupon of 8 percent and selling at par (hint: don’t worry about semi-annual compounding). Treasury bond portion of the securities portfolio has a duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a one year duration, short-term borrowings have a 0.005 year duration, and demand deposits a zero year duration.
What is the duration of the bank's Treasury notes?
What is the duration of the bank's Treasury portfolio?
What is the bank's duration gap?
If all interest rates fall by 2 percent, calculate the impact on the bank's market value of equity using the duration approximation. (For this part of the question assume that ΔR/(1+R) = -.02)
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