use the information in the table (asset liability are in millions) Asset Market
ID: 2759235 • Letter: U
Question
use the information in the table (asset liability are in millions)
Asset
Market value
Duration (in year)
Liability
Market value
Duration (in year)
cash
10
0
Demand deposit
40
0.1
Investment (e.g. T-bill)
30
0.4
CDs
50
1.5
Consumer loan
60
4
Equity
10
duration for total assets =_____2.52______(do not round intermediate calculations, keep two decimal places for final answer
Leverage ratio k is =______.90_____(do not round intermediate calculations, keep two decimal places for final answer)
Given your calculation from above, suppose current market rate is 5%, and if the rate rises by 0.10%, the change in equity value is =___________(if your answer is negative, please include negative sign, do not round intermediate calculations, keep two decimal places for final answer
Asset
Market value
Duration (in year)
Liability
Market value
Duration (in year)
cash
10
0
Demand deposit
40
0.1
Investment (e.g. T-bill)
30
0.4
CDs
50
1.5
Consumer loan
60
4
Equity
10
Explanation / Answer
Duration of total assets Market value (in millions) Duration (in years) Weighted duration (years) Cash 10 2 0.2 Investment 30 0.4 0.12 Total Assets 60 4 2.4 Average asset duration 2.72 Leverage Ratio: (Short term Debt+Long-term Debt)/ Total Assets Leverage Ratio: (40+50)/ 100 Leverage Ratio: 0.9 When Interest rate increases from 5% to 5.1% Change in equity=(-)Duration of assets*change in rate/(1+rate) Change in equity=-0.259 Change in equity=-25.90
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