Calculate The Duration Of Treasury Notes And Leverage Adjusted Duration Gap


The numbers provided are in thousands of dollars.    

Treasury bill



Time deposits


Treasury notes



Fed funds sold

$ 230

Treasury bonds



Demand deposits







Notes:  All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Time deposits have a 1-year duration and the Fed funds duration is .003 years.

1. What is the duration of the bank's Treasury note portfolio?
    a. 1.07 years.
    b. 1.00 year.
    c. 0.98 years.
    d. 0.92 years.
    e. Insufficient information.

2. What is the bank's leverage adjusted duration gap?
    a. +6.73 years.
    b. +0.29 years.
    c. –6.44 years.
    d. +6.51 years.
    e. 0 years.

3. If all interest rates fall by 1 percent, calculate the impact on the bank's market value of equity using the duration approximation. (That is, DR/(1+R) = -1 percent)
    a. The bank's market value of equity increases by $325,450.
    b. The bank's market value of equity decreases by $325,450.
    c. The bank's market value of equity increases by $336,500.
    d. The bank's market value of equity decreases by $336,500.
    e. There is no change in the bank's market value of equity.


These short questions belong to Finance and the questions deal with treasury notes of a bank. The duration of the treasury note portfolio, leverage adjusted duration gap and fall in interest and impact on the bank’s market value of equity needs to be calculated.

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