Explore BrainMass

Explore BrainMass

    Financial Institutions: Average duration of assets, of liabilities, interest rate exposure

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Use the attached balance sheet information to answer this question.

    a. What is the average duration of all the assets?
    b. What is the average duration of all the liabilities?
    c. What is the FI's leverage-adjusted duration gap? What is the FI's interest rate risk exposure?
    d. If the entire yield curve shifted upward 0.5 percent (i.e., Î"R/(1 + R) =.0050), what is the impact on the FI's market value of equity?
    e. If the entire yield curve shifted downward 0.25 percent (i.e., Î"R/(1 + R) = â?'.0025), what is the impact on the FI's market value of equity?

    © BrainMass Inc. brainmass.com March 4, 2021, 11:29 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/average-duration-assets-liabilities-interest-rate-exposure-427156

    Attachments

    Solution Preview

    Get the answer with attachments.

    Answer:
    Given that,
    Balance Sheet ($ thousands) and Duration (in years)
    Duration Amount
    T-bills 0.5 90
    T-notes 0.9 55
    T-bonds 4.393 176
    Loans 7 2,724
    Deposits 1 2,092
    Federal Funds 0.01 238
    Equity 715

    Now,
    Categorizing asset and Liabilities in the balance sheet:
    Balance Sheet ($ thousands) and Duration (in ...

    Solution Summary

    The average duration of assets, liabilities and interest rate exposures are examined.

    $2.49

    ADVERTISEMENT