Calculate Weighted Average Duration Of Assets And Liabilities Of A Bank

Question

The numbers provided are in millions of dollars and reflect market values:

Cash

 

20

Deposits

historical avg. maturity = 4 years; historical average duration = 3.5 years

200

T-Bills

30 days (4.5 percent, par)

50

Certificates of Deposit

avg. maturity = 6 months; avg. duration = 6 months

150

T-Bills

91 days (5.0 percent, par)

60

Short-term Debt

avg. maturity = 4 years

150

Commercial Loans

avg. maturity = 9.0 years; avg. duration = 7.5 years

300

Long-term debt

avg. maturity = 15 years; average duration = 12 years

200

Consumer Loans

avg. maturity = 6.0 years; avg. duration = 4.0 years

200

Equity

 

130

Mortgage Loans – Fixed rate

avg. maturity = 30 years; avg. duration = 25 years

150

 

 

 

Mortgage Loans - Adjustable

avg. maturity = 30 years; interest rate reset = 6 months

50

 

 

 

Total Assets:

830

Total Liabilities & Equity:

830


 
1. The short-term debt consists of 4-year bonds paying an annual coupon of 4 percent and selling at par. What is the duration of the short-term debt?
    a.    3.28 years.
    b.    3.53 years.
    c.    3.78 years.
    d.    4.03 years.
    e.    4.28 years.

2. What is the weighted average duration of the assets of the FI?
    a.    7.25 years.
    b.    7.75 years.
    c.    8.25 years.
    d.    8.75 years.
    e.    9.25 years.

3. What is the weighted average duration of the liabilities of the FI?
    a.    5.00 years.
    b.    5.35 years.
    c.    5.70 years.
    d.    6.05 years.
    e.    6.40 years.

 

Summary

These short questions belong to Finance and the questions are about a bank whose assets and liabilities have been given. Questions such as duration of short term debt, weighted average duration of assets and weighted average duration of liabilities of the bank have been calculated in the solution.

Total Word Count 130

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Comments

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