Duration of liabilities would lead to duration gap of zero

Assignment Help Financial Management

Reference no: EM131923932

Suppose a bank has $500 million in interest rates sensitive assets, with a duration of 5 years, and $600 million of interest rate sensitive liabilities with a duration of 2 years.

a. If interest rates increase from 3% to 4%, what is the percentage change in net worth of the bank? Enter your response as a percent without the percent sign (for example, enter a numerical answer of 0.0525 = 5.25%, as 5.25).

b. Given the information in the previous question, what duration of assets would lead to a duration gap of zero?

c. Given the information in question part a above, what duration of liabilities would lead to a duration gap of zero?

Reference no: EM131923932

Questions Cloud

What is arithmetic return for stock : What is the arithmetic return for the stock? What is the geometric return for the stock?

What is the price of put option with same exercise price : If the risk-free rate of interest is 3 percent per year, compounded continuously, what is the price of a put option with the same exercise price?

What is the duration of bond : It matures in 7 years and has an annual YTM of 5%. What is the duration of the bond?

The change in property tax policy : What is the value of the Uys’ house after the change in property tax policy under 100% capitalization? Explain your calculation carefully.

Duration of liabilities would lead to duration gap of zero : what duration of assets would lead to a duration gap of zero? what duration of liabilities would lead to a duration gap of zero?

What is the current ytm of bonds : You are analyzing the cost of debt for a firm. What is the current YTM of the bonds?

Convertible bond pays interest annually at coupon rate : A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000.

Project evaluation-what level of pretax cost savings : Project Evaluation. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Momentum cyclicals cost of common equity capital : If the risk-free rate of return is 4.60 percent and market risk premium is 5.71 percent, what is Momentum Cyclicals’ cost of common equity capital?

User Account

All Pages