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
The clean Bank has the following assets and liabilities as of year-end.All asset and liability item have face value of $1,000 and are priced at par.And interests and coupons are paid annually for all asset and liability items.
| Assets | Amount($millions) | Annual Rate | Liabiltiies and Equity | Amount($millions) | Annual Rate |
| 5-year loans | 40 | 40% | 3-year term deposit | 20 | 4% |
| 5-year coupon bonds | 60 | 8% | 5-year term deposit | 30 | 8% |
| Equity | 50 | ||||
| Total | 100 | 100 |
Please calulate the Clean Bank's maturity gap.What does the maturity gap imply about the interest risk of the bank?Will you view on the interest risk of the bank be different under duration model?Explain carefully..
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