22-4 d is not .6495 Use the data provided for Gotbucks Bank, Inc., to answer thi

Question

22-4 d is not .6495

Use the data provided for Gotbucks Bank, Inc., to answer this question.

Notes to the balance sheet: Currently, the fed funds rate is 9 percent. Variable-rate loans are priced at 3 percent over LIBOR (currently at 10 percent). Fixed-rate loans are selling at par and have five-year maturities with 11 percent interest paid annually. Assume that fixed rate loans are non-amortizing. Core deposits are all fixed rate for two years at 7 percent paid annually. Euro CDs currently yield 8 percent.

What is the duration of Gotbucks Bank’s (GBI) fixed-rate loan portfolio if the loans are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

If the average duration of GBI’s floating-rate loans (including fed fund assets) is .41 year, what is the duration of the bank’s assets? (Note that the duration of cash is zero.) (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

What is the duration of GBI’s core deposits if they are priced at par? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

If the duration of GBI’s Euro CDs and fed fund liabilities is .406 years, what is the duration of the bank’s liabilities? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

What is GBI’s duration gap? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

What is the expected change in equity value if all yields increase by 200 basis points? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

Given the equity change in e-2. what is the expected new market value of equity after the interest rate change? (Enter your answer in dollars not in millions. Negative amount should be indicated by a minus sign. Do not round intermediate calculations.)

Use the data provided for Gotbucks Bank, Inc., to answer this question.

Explanation / Answer

Soln : a) Duration is the sensitivity of pricing with the change in interest rate of the instrument bond, loan etc. Please refer the table, we have considered yield as =11%, Price at Par, P = 70

b) Now duration of federal fund and floating rate is given as 0.41 year , for fixed loan we have calculated as 4.10 years

So, duration of assets = weighted average duration of all assets/Total assets = (35*0 +(25+110)*0.41 +70*4.10)/240 = 1.43 years.

c) Duration of core deposits , when they are at par yield is taken as 7% and price = 36

We can see duration of core deposits = 1.935 years (Calcuated above)

d) duration of Euro CDs and fed funds liabilities = 0.406 years ,

So , duration of liabilities = weighted average of duration/total liabilities = (1.935*36 + 55 *0.406 +135*0.406) /226 = 146.785/226 = 0.6495 years

Years(t) 1 2 3 4 5 Coupon 7.7 7.7 7.7 7.7 77.7 Discount facor at 11% 0.9009009 0.8116224 0.7311914 0.658731 0.59345133 PV 6.94 6.25 5.63 5.07 46.11 Sum of pV = V 70.00 t*PV 6.9369 12.4990 16.8905 20.2889 230.5558 Duration = sum of t*PV/V 4.10

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