A bank wants to use direct refinancing to manage its duration gap,
DG. Currently, for its assets, Loans = $22 million and Cash = $6 million. Equity = $4 million. Average DA = 2.75 yrs, and average DL = 4 yrs.
6.1 Should the bank buy loans with cash or sell existing loans for cash to reduce its interest rate risk?
6.2 What is the duration of the bank's existing loans?
6.3 How much cash will be used to eliminate the bank's interest rate exposure, if the loanavailable on the market has a duration of 7.6 years?
Recently Asked Questions
- Suppose that you borrow 100 million today. Assume that the current spot rate is 120/$ and that the 12 months forward rate (F/$) is F/$ = 119/$. Also, the 12-
- 100 Apple bonds (each with a $1,000 face value and a 3.25% coupon rate) that are five years from their 10-year maturity date How much is it worth after 5
- What is the future value of $900 in 25 years assuming an interest rate of 10 percent compounded semiannually?