Bond Duration of the Asset Convexity of the Asset 12.026 Assets 5yr bond bought at a yield of 3.4% | $550M |(lending money) 12yr bond bought at a yield of 4% (lending money) Value 4.562 $800M 9.453 53.565 Duration of the Liability 1.941 Convexity of the Liability 2.384 Liabilities Value 2yr bond sold at a yield of 2.4% (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $300M $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) %3D b) Calculate the duration and convexity of the both asset and liability sides
Bond Duration of the Asset Convexity of the Asset 12.026 Assets 5yr bond bought at a yield of 3.4% | $550M |(lending money) 12yr bond bought at a yield of 4% (lending money) Value 4.562 $800M 9.453 53.565 Duration of the Liability 1.941 Convexity of the Liability 2.384 Liabilities Value 2yr bond sold at a yield of 2.4% (borrowing money) 4yr bond sold at a yield of 2.8% (borrowing money) $300M $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) %3D b) Calculate the duration and convexity of the both asset and liability sides
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Note: answer without using excel
Transcribed Image Text:Bond
Duration of the Asset Convexity of the Asset
12.026
Assets
5yr bond bought at a yield of 3.4% | $550M
|(lending money)
12yr bond bought at a yield of 4%
(lending money)
Value
4.562
$800M
9.453
53.565
Duration of the
Liability
1.941
Convexity of the
Liability
2.384
Liabilities
Value
2yr bond sold at a yield of 2.4%
(borrowing money)
4yr bond sold at a yield of 2.8%
(borrowing money)
$300M
$500M
3.759
8.206
a) Calculate the equity (total asset – total liability) to asset ratio of the bank
(Hint: equity to asset ratio = total equity/total asset)
%3D
b) Calculate the duration and convexity of the both asset and liability sides
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