Bank of Charub ($ million) Assets: Liabilities and Net Worth: 270 day US Treasury bills $500m 1 year Certificates of Deposit $550m 2 year consumer loans Demand Deposits $750m Fixed rate, 12% p.a. annually $275m 2 year Bonds $175m 7 year commercial loans $350m Fixed rate, 7.5% p.a. annually Fixed rate, 9% p.a. annually Overnight Fed Funds $350m 10 year fixed rate mortgages $675m Fixed rate, 6.5% p.a. monthly 10 year floating rate mortgages $125m Equity $100m LIBOR+50bp, monthly roll date Notes: The 1 year Certificates of Deposit pay 1.95% p.a. annually. The demand deposits are non-interest bearing and have a duration of zero. The 7 year commercial loans have a duration of 4.75 years. The fixed rate mortgages have a duration of 8.3 years. All values are market values. 2. What is the duration of the 2 year bonds they are selling at par at 7.5% p.a. interest, compounded annually? a. 1.93 years b. 1 year c. 2 years d. 1.5 years e. 3.86 years
Bank of Charub ($ million)
Assets: Liabilities and Net Worth:
270 day US Treasury bills $500m 1 year Certificates of Deposit $550m
2 year consumer loans Demand Deposits $750m
Fixed rate, 12% p.a. annually $275m 2 year Bonds $175m
7 year commercial loans $350m Fixed rate, 7.5% p.a. annually
Fixed rate, 9% p.a. annually Overnight Fed Funds $350m
10 year fixed rate mortgages $675m
Fixed rate, 6.5% p.a. monthly
10 year floating rate mortgages $125m Equity $100m
LIBOR+50bp, monthly roll date
Notes: The 1 year Certificates of Deposit pay 1.95% p.a. annually. The demand deposits
are non-interest bearing and have a duration of zero. The 7 year commercial loans have a
duration of 4.75 years. The fixed rate mortgages have a duration of 8.3 years. All values
are market values.
2. What is the duration of the 2 year bonds they are selling at par at 7.5% p.a.
interest, compounded annually?
a. 1.93 years
b. 1 year
c. 2 years
d. 1.5 years
e. 3.86 years
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