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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 $550M 5yr bond bought at a yield of 3.4% (lending money) 4.562 12.026 $800M 12yr bond bought at a yield of 4% (lending money) 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability $300M 2yr bond sold at a yield of 2.4% (borrowing money) 1.941 2.384 4yr bond sold at a yield of 2.8% $500M 3.759 8.206 (borrowing money)

Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset $550M 5yr bond bought at a yield of 3.4% (lending money) 4.562 12.026 $800M 12yr bond bought at a yield of 4% (lending money) 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability $300M 2yr bond sold at a yield of 2.4% (borrowing money) 1.941 2.384 4yr bond sold at a yield of 2.8% $500M 3.759 8.206 (borrowing money)

Essentials Of Investments
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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 Calculate the equity (total asset – total liability) to asset ratio of the bank

Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset $550M 5yr bond bought at a yield of 3.4% (lending money) 4.562 12.026 $800M 12yr bond bought at a yield of 4% (lending money) 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability $300M 2yr bond sold at a yield of 2.4% (borrowing money) 1.941 2.384 4yr bond sold at a yield of 2.8% $500M 3.759 8.206 (borrowing money)
Transcribed Image Text:Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset $550M 5yr bond bought at a yield of 3.4% (lending money) 4.562 12.026 $800M 12yr bond bought at a yield of 4% (lending money) 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability $300M 2yr bond sold at a yield of 2.4% (borrowing money) 1.941 2.384 4yr bond sold at a yield of 2.8% $500M 3.759 8.206 (borrowing money)
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