Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 Calculate the equity (total asset – total liability) to asset ratio of the bank Calculate the duration and convexity of the both asset and liability sides;
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 Calculate the equity (total asset – total liability) to asset ratio of the bank 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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Consider a bank with the following balance sheet (M means million):
|
Assets |
Value |
Duration of the Asset |
Convexity of the Asset |
|
5yr bond bought at a yield of 3.4% (lending money) |
$550M |
4.562 |
12.026 |
|
12yr bond bought at a yield of 4% (lending money) |
$800M |
9.453 |
53.565 |
|
Liabilities |
Value |
Duration of the Liability |
Convexity of the Liability |
|
2yr bond sold at a yield of 2.4% (borrowing money) |
$300M |
1.941 |
2.384 |
|
4yr bond sold at a yield of 2.8% (borrowing money) |
$500M |
3.759 |
8.206 |
Calculate the equity (total asset – total liability) to asset ratio of the bank
Calculate the duration and convexity of the both asset and liability sides;
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