Week 3: duration and bank value (slides exercise). Part I: Bank ABC has the following 2 bond-like loans: Loan 1: $1m loan fixed for 3 years at 10% Loan 2: $1m loan fixed for 5 years at 12% I.a) The market interest rate is now at 5%. The duration of the bank's loan portfolio is. years. (4 d.p., use spreadsheet to do calculation) 1.b) If the market interest rate increases by 1% now, the percentage change of the present value of the portfolio would be ___ percent. (2 d.p.) ABC has $1.5m of liabilities (at market value) with a duration of 2.68 years. The value of the bank change due to the change in interest rate would be $ ___ thousand. (2 d.p.)
Week 3: duration and bank value (slides exercise). Part I: Bank ABC has the following 2 bond-like loans: Loan 1: $1m loan fixed for 3 years at 10% Loan 2: $1m loan fixed for 5 years at 12% I.a) The market interest rate is now at 5%. The duration of the bank's loan portfolio is. years. (4 d.p., use spreadsheet to do calculation) 1.b) If the market interest rate increases by 1% now, the percentage change of the present value of the portfolio would be ___ percent. (2 d.p.) ABC has $1.5m of liabilities (at market value) with a duration of 2.68 years. The value of the bank change due to the change in interest rate would be $ ___ thousand. (2 d.p.)
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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Transcribed Image Text:Week 3: duration and bank value (slides exercise).
Part I:
Bank ABC has the following 2 bond-like loans:
Loan 1: $1m loan fixed for 3 years at 10%
Loan 2: $1m loan fixed for 5 years at 12%
I.a) The market interest rate is now at 5%. The duration of the bank's loan portfolio is.
years. (4 d.p., use spreadsheet to do calculation)
1.b) If the market interest rate increases by 1% now, the percentage change of the present value of the portfolio would be ___ percent. (2 d.p.)
ABC has $1.5m of liabilities (at market value) with a duration of 2.68 years. The value of the bank change due to the change in interest rate would be $ ___ thousand. (2 d.p.)
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