Reference no: EM133016935
Question - CALCULATING AND USING DURATION GAP - State Bank's balance sheet is listed below. Market yields and durations (in years) are in parentheses, and amounts are in millions.
Assets
Cash $20
Fed Funds (1.05%, 0.02) 150
T-bills (5.25%, 0.22) 300
T-bonds (7.50%, 7.55) 200
Consumer loans (6%, 2.50) 900
C&I loans (5.8%, 6.58) 475
Fixed-rate mortgages (7.85, 19.50) 1200
Variable-rate mortgages, repriced @ quarter (6.3%, 0.25) 580
Premises and equipment 120
Total assets $3,945
Liabilities and Equity
Demand Deposits $250
MMDAs (2.5%, 0.50) (no minimum balance requirement) 360
CDs (4.3%, 0.48) 715
CDs (6%, 4.45) 1,105
Fed Fund (1%, 0.02) 515
Commercial paper (3.00%, 0.45) 400
Subordinated debt:
Fixed-rate (7.25%, 6.65) 200
Total Liabilities $3,545
Equity 400
Total Liabilities and equity $3,945
Required -
a. What is State Bank's duration gap?
b. Use these duration values to calculate the expected change in the value of the assets and liabilities of State Bank for a predicted increase of 1.5 percent in interest rates.
c. What is the change in equity value forecasted from the duration values for a predicted increase in interest rates of 1.5 percent?
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