Notes to the balance sheet: Currently, the fed funds rate is 8.5 percent. Variable-rate loans are priced at 4 percent over LIBOR (currently at 11 percent). Fixed-rate loans are selling at par and have five-year maturities with 12 percent interest paid annually. Core deposits are all fixed rate for two years at 8 percent paid annually. Euro CDs currently yield 9 percent. (LG 23-3) Gotbucks Bank Inc.(dollars in milllions) Assets Liabilities Cash $30 Core Deposits $20 Federal Funds 20 Federal Funds 50 Loans (floating) 105 Euro Cds 130 Loans (Fixed) 65 Equity 20 Total Assets $220 Total Liabilities and Equity $220 d. If the duration of GBI’s Euro CDs and fed fund liabilities is 0.401 year, what is the duration of the bank’s liabilities? e. What is GBI’s duration gap? What is its interest rate risk exposure? If all yields increase by 1 percent, what is the impact on the market value of GBI’s equity? (That is, ΔR/(1 + R) = 0.01 for all assets and liabilities.)
Notes to the balance sheet: Currently, the fed funds rate is 8.5 percent. Variable-rate loans are priced at 4 percent over LIBOR (currently at 11 percent). Fixed-rate loans are selling at par and have five-year maturities with 12 percent interest paid annually. Core deposits are all fixed rate for two years at 8 percent paid annually. Euro CDs currently yield 9 percent. (LG 23-3) Gotbucks Bank Inc.(dollars in milllions) Assets Liabilities Cash $30 Core Deposits $20 Federal Funds 20 Federal Funds 50 Loans (floating) 105 Euro Cds 130 Loans (Fixed) 65 Equity 20 Total Assets $220 Total Liabilities and Equity $220 d. If the duration of GBI’s Euro CDs and fed fund liabilities is 0.401 year, what is the duration of the bank’s liabilities? e. What is GBI’s duration gap? What is its interest rate risk exposure? If all yields increase by 1 percent, what is the impact on the market value of GBI’s equity? (That is, ΔR/(1 + R) = 0.01 for all assets and liabilities.)
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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Question
Use the data provided for Gotbucks Bank Inc. to answer this question.
Notes to the
| Gotbucks Bank Inc.(dollars in milllions) | ||||
| Assets | Liabilities | |||
| Cash | $30 | Core Deposits | $20 | |
| Federal Funds | 20 | Federal Funds | 50 | |
| Loans (floating) | 105 | Euro Cds | 130 | |
| Loans (Fixed) | 65 | Equity | 20 | |
| Total Assets | $220 | Total Liabilities and Equity | $220 | |
d. If the duration of GBI’s Euro CDs and fed fund liabilities is 0.401 year, what is the duration of the bank’s liabilities?
e. What is GBI’s duration gap? What is its interest rate risk exposure? If all yields increase by 1 percent, what is the impact on the market value of GBI’s equity? (That is, ΔR/(1 + R) = 0.01 for all assets and liabilities.)
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