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What is the bank asset-liability mismatch

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Reference no: EM132525416

Suppose that a bank has $10 billion of 1-year loan and $15 billion of 5-year loan. These are financed by $15 billion of 1-year deposit and $7 billion of 5-year deposit. The bank has equity totaling $2 billion and its ROE (return on equity) before tax is currently 10%.

(a) What is the bank's asset-liability mismatch?

(b) What is the profit before tax? 

(c) Let X% be the rise in interest rates next year so that the bank's ROE will be reduced to half. What is the value of X?

Reference no: EM132525416

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