Use the data provided for Gotbucks Bank Inc. to answer this question. 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 a. What is the duration of Gotbucks Bank’s (GBI) fixed-rate loan portfolio if the loans are priced at par? b. If the average duration of GBI’s floating-rate loans (including fed fund assets) is 0.36 year, what is the duration of the bank’s assets? (Note that the duration of cash is zero.) c. What is the duration of GBI’s core deposits if they are priced at par?
Use the data provided for Gotbucks Bank Inc. to answer this question. 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 a. What is the duration of Gotbucks Bank’s (GBI) fixed-rate loan portfolio if the loans are priced at par? b. If the average duration of GBI’s floating-rate loans (including fed fund assets) is 0.36 year, what is the duration of the bank’s assets? (Note that the duration of cash is zero.) c. What is the duration of GBI’s core deposits if they are priced at par?
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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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 | |
a. What is the duration of Gotbucks Bank’s (GBI) fixed-rate loan portfolio if the loans are priced at par?
b. If the average duration of GBI’s floating-rate loans (including fed fund assets) is 0.36 year, what is the duration of the bank’s assets? (Note that the duration of cash is zero.)
c. What is the duration of GBI’s core deposits if they are priced at par?
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