Calculate the duration gap

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Reference no: EM132199832

Question - The following is the balance sheet of a bank which uses Duration to manage its interest rate risk:

ASSETS

LIABS. & EQUITY

 

 

Total Liabilities

240

Total Assets

280

Total Capital

40

Assume the modified duration of the assets is 3.6 and the modified duration of the liabilities is 2.8.

a. Calculate the Duration GAP. (Use the modified duration quantities.)

b. What interest rate movement is the bank expecting? Explain.

c. Calculate the change in Net Worth (Δ NW) for a 0.75% drop in yields.

d. Recalculate the Δ NW for a 0.50% rise in yields.

Reference no: EM132199832

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