Duration of the municipal notes

Reference no: EM13827772

Problem:

The following is an FI's balance sheet ($millions).

Assets	Amount	Duration	Liabilities	Amount	Duration
Cash	$ 1	0 years	Dem. Deposits	$100	0 years
FF&RP	20	0.01 years	FF&RP	50	0.01 years
Munis	50	x	CDs	90	1.0 years
Loans	200	y	Net Worth	31

Notes to Balance Sheet:

Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.

1. What is the duration of the municipal notes (the value of x)?

a. 1.94 years.
b. 2.00 years.
c. 1.00 years.
d. 1.81 years.
e. 0.97 years.

Additional Information:

These short questions belong to Finance and it is about calculation of the value of munis or municipal notes selling at par.

Reference no: EM13827772

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