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Compute gain/loss to a bank for holding Assets & Liabilties

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A bank has $10 billion in assets and $9 billion in liabilities. The duration of its assets is 2.2 years. The duration of its liabilities is 1.5 years. Market interest rates rise from 5% to 6%. What is the gain or loss to the bank?

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Solution Summary

The solution calculate gain or loss to a bank for holding their assets and liabilities

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The gain or loss of the bank will be calculated on basis on change in equity of the bank.

Duration Gap Analysis - It is undertaken to compares the sensitivity of a bank's total assets with the sensitivity of its total liabilities to see the impact of potential changes in interest rates on stockholders' ...

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