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: Fed funds 1.05% ($0.02) T-bills: 5.25% ($0.22) T-bonds: 7.50% ($7.55) Consumer loans: 6% ($2.50) C&I loans: 5.8% ($6.85) Fixed-rate mortgages: 7.85% ($19.50) Variable-rate mortgages, repriced quarterly: 6.3% ($0.25) Premises and equipment: $20 Liabilities and Equity: Demand deposits: MMDAs 2.5% ($0.50, no minimum balance requirement) CDs: 4.3% ($0.48) CDs: 6% ($4.45) Fed funds: 1% ($0.02) Commercial paper: 3% ($0.45) Subordinated debt: Fixed-rate 7.25% ($6.65) Total liabilities: $250 Equity: $360 Total liabilities and equity: $610 Total assets: $630 

          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: Fed funds 1.05% ($0.02)
T-bills: 5.25% ($0.22)
T-bonds: 7.50% ($7.55)
Consumer loans: 6% ($2.50)
C&I loans: 5.8% ($6.85)
Fixed-rate mortgages: 7.85% ($19.50)
Variable-rate mortgages, repriced quarterly: 6.3% ($0.25)
Premises and equipment: $20

Liabilities and Equity:
Demand deposits: MMDAs 2.5% ($0.50, no minimum balance requirement)
CDs: 4.3% ($0.48)
CDs: 6% ($4.45)
Fed funds: 1% ($0.02)
Commercial paper: 3% ($0.45)
Subordinated debt: Fixed-rate 7.25% ($6.65)
Total liabilities: $250
Equity: $360
Total liabilities and equity: $610

Total assets: $630
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alculatingandusingdurauon gap state banks balance sheet is listed belowmarket yields and durations in years are in parenthesisand amounts are in millions assets liabilities and equity cash f 63427

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Horngren’s Cost Accounting
Horngren’s Cost Accounting
Srikant M. Datar, Madhav V. Rajan 16th Edition
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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: Fed funds 1.05% ($0.02) T-bills: 5.25% ($0.22) T-bonds: 7.50% ($7.55) Consumer loans: 6% ($2.50) C&I loans: 5.8% ($6.85) Fixed-rate mortgages: 7.85% ($19.50) Variable-rate mortgages, repriced quarterly: 6.3% ($0.25) Premises and equipment: $20 Liabilities and Equity: Demand deposits: MMDAs 2.5% ($0.50, no minimum balance requirement) CDs: 4.3% ($0.48) CDs: 6% ($4.45) Fed funds: 1% ($0.02) Commercial paper: 3% ($0.45) Subordinated debt: Fixed-rate 7.25% ($6.65) Total liabilities: $250 Equity: $360 Total liabilities and equity: $610 Total assets: $630
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State Bank's balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. Assets Liabilities and Equity Cash $31 Demand deposits $253 Fed funds (2.05%, 0.02) 150 Savings accounts (0.5%, 1.25) 50 3-month T-bills (3.25%, 0.22) 200 MMDAs (3.5%, 0.50) 8-year T-bonds (6.50%, 7.55) 250 (no minimum balance requirement) 460 5-year munis (7.20%, 4.25) 50 3-month CDs (3.2%, 0.20) 175 6-month consumer loans (5%, 0.42) 250 1-year CDs (3.5%, 0.95) 375 5-year car loans (6%, 3.78) 350 5-year CDs (5%, 4.85) 350 7-month C&I loans (4.8%, 0.55) 200 Fed funds (2%, 0.02) 225 2-year C&I loans (4.15%, 1.65) 275 Repos (2%, 0.05) 290 Fixed-rate mortgages (5.10%, 0.48) 6-month commercial paper (maturing in 5 months) 450 (4.05%, 0.55) 300 Fixed-rate mortgages (6.85%, 0.85) Subordinate notes: (maturing in 1 year) 300 1-year fixed rate (5.55%, 0.92) 200 Fixed-rate mortgages (5.30%, 4.45) Subordinated debt: (maturing in 5 years) 275 7-year fixed rate (6.25%, 6.65) 100 Fixed-rate mortgages (5.40%, 18.25) Total liabilities $2,778 (maturing in 20 years) 355 Premises and equipment 20 Equity 378 Total assets $3,156 Total liabilities and equity $3,156 Assume savings accounts and MMDAs are rate-sensitive liabilities. a. What is the repricing gap if the planning period is six months? One year? b. What is State Bank's duration gap? c. What is the impact over the next six months on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 35 basis points? Explain the results. d. What is the impact over the next year on net interest income if interest rates on RSAs decrease (increase) 35 basis points and on RSLs decrease (increase) 50 basis points? Explain the results. e. Use these duration values to calculate the expected change in the value of the assets and liabilities of State Bank for a predicted decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities. f. What is the change in equity value forecasted from the duration values for decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities? g. Use the duration gap model to calculate the change in equity value if the relative change in all market interest rates is a decrease of 50 basis points.

Madhur L.
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Spruce National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually. Assets Amount ($ millions) Annual Rate Liabilities Amount ($ millions) Annual Rate 1-year bonds $60 7% 1-year CD $50 5% 10-year loan $40 12% 2-year CD $40 6% Equity $10 Total $100 Total $100 What is the weighted average maturity of assets? What is the weighted average maturity of liabilities? What is the banks maturity gap? What is the impact on the equity of an overall increase in market interest rates on all fixed-rate instruments? (Show work please)

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2. Explain duration GAP analysis in banks. Calculate the duration Gap of the following excerpts from the balance sheet of a bank. Also calculate the impact on the equity of the bank in the different interest rates scenarios. Scenarios for Impact analysis: 1. Interest rates increased by 1% 2. Interest rates decreased by 1% (10 Marks)

Manasvee S.
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Transcript

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00:02 Hello students, in this question, we have to compute the repricing gap.
00:06 So it is the difference between the rate sensitive, rate sensitive asset, which is rsas and rate sensitive liabilities, rsls that will reprice within a given time period.
00:31 So for a planning period of six months, we are computing first.
00:41 So rsa will be saving account plus mmdas.
00:48 So it is 50 million plus 460 million.
00:53 So it will be 5 .10 million dollar.
00:57 Now computing rsl, which is non -pricing gap will be, rsl is also 1 .510 million.
01:10 Now computing non -pricing gap, repricing gap...
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