numbers provided are in thousands of dollars. All securities are selling at par. Treasury bill $ 90 Time deposits $1,100 Treasury notes $ 55 Fed funds sold $ 230 Treasury bonds $ 176 Demand deposits $2,500 Loans $4,679 Equity $1,170 Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a 1-year duration and the Fed funds duration is .003 years. Question: If relative change in all market interest rates is a decrease of 1%, calculate the impact on the bank's market value of equity using the duration approximation. (That is, DR/(1+R) = -1%) Question: What would the duration of the assets need to be to immunize the equity from changes in market interest rates?
The numbers provided are in thousands of dollars. All securities are selling at par.
Treasury bill $ 90 Time deposits $1,100
Treasury notes $ 55 Fed funds sold $ 230
Treasury bonds $ 176 Demand deposits $2,500
Loans $4,679 Equity $1,170
Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a 1-year duration and the Fed funds duration is .003 years.
Question: If relative change in all market interest rates is a decrease of 1%, calculate the impact on the bank's market value of equity using the duration approximation. (That is, DR/(1+R) = -1%)
Question: What would the duration of the assets need to be to immunize the equity from changes in market interest rates?
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