Practice_problem-DURATION

Practice_problem-DURATION - 1 20 .08 0.9259 1.4815 1.48...

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FINA 215 FINANCIAL MARKETS &INSTITUTIONS SPRING 2010 Practice problem #10- Chapter 22- p. 633 10. a. Duration of GBI = s fixed-rate loan portfolio: Time cash flow PVIF PVCF PVCF*t 1 65 .12 0.8929 6.9646 6.96 2 65 .12 0.7972 6.2181 12.44 3 65 .12 0.7118 5.5519 16.66 4 65 .12 0.6355 4.9570 19.83 5 (65 .12)+65 0.5674 41.3087 206.54 65.0000 262.43 Duration = 262.43/65 = 4.037 years. b. D A = 30/220 (0) + (20 + 105)/220 (.36) + 65/220 (4.037) = 1.397 years c. Duration of GBI's core deposits: Time cash flow PVIF PVCF PVCF*t
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Unformatted text preview: 1 20  .08 0.9259 1.4815 1.48 2 (20  .08)+20 0.8573 18.5185 37.04 20.0000 38.52 Duration = 38.52/20 = 1.926 years. d. D L = 20/200  (1.926) + (50 + 130)/200  (.401) = .5535 years e. GBI = s leveraged adjusted duration gap is: 1.397 - 200/220  (.5535) = .8938 years Since GBI's duration gap is positive, an increase in interest rates will lead to a decline in net worth. For a 1% increase, the change in net worth is: ΔE = -0.8938  $220m  (0.01) = -$1,966,360 (new net worth will be $18,033,640)....
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