Propose a possible adjustment of duration gap

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Reference no: EM132661358

Suppose that a U.S. FI has the following assets and liabilities:

Assets (in Million $)

Cash $40

One-year mortgages (currently 10% annually): $100 (duration: 1 year)

5-year fixed-rate loans (7% annually): $360 (duration: 6.2 years)

Liabilities and Equity (in Million $)

1-year term deposits (currently 6% annually): $160 (duration: 1 year)

3-year term fixed-rate deposits (7% annually): $300 (duration: 2.7 years)

Equity: $40

Problem 1: Propose a possible adjustment of duration gap that makes ABC bank immunize against interest rate risk.

Reference no: EM132661358

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