1. Refer to the following for Acme National Bank: 1-YEAR RATE-SENSITIVE ASSETS $
ID: 2805529 • Letter: 1
Question
1. Refer to the following for Acme National Bank:
1-YEAR RATE-SENSITIVE ASSETS
$ 80,000,000
1-YEAR RATE-SENSITIVE LIABILITIES
$100,000,000
TOTAL ASSETS
$160,000,000
TOTAL LIABILTITIES
$145,000,000
What is Acme's one-year repricing gap?
Select one:
a. $80 million
b. $20 million
c. $15 million
d. -$15 million
e. -$20 million
-
-
-
2. Consider the following balance sheet (in millions of $) for a bank:
What is the bank's duration gap (in years)?
Answer:
-
-
-
3. Consider a bank with the following balance sheet:
What is the bank's duration gap (in years)?
Answer:
1-YEAR RATE-SENSITIVE ASSETS
$ 80,000,000
1-YEAR RATE-SENSITIVE LIABILITIES
$100,000,000
TOTAL ASSETS
$160,000,000
TOTAL LIABILTITIES
$145,000,000
Explanation / Answer
Ans:
1. Repricing gap can be calculated by subtracting rate sensitive liabilities (RSL) from rate sensitive assets (RSA):
Repricing gap= RSA- RSL
RG= 80,000,000-100,000,000
RG= -$20,000,000
So, repricing gap is -$20 million.
2. Bank’s duration gap:
Duration of assets (DA)= 7.5 years
Duration of liabilities (DL)= 1.5 years
Duration gap is computed by using the following formula:
DGAP= DA- (Liabilities/Assets)* DL
DGAP= 7.5- (650/790)*1.5
DGAP= 6.27 Years
Duration gap for the given assets and liabilities are 6.27 years.
3. Duration gap analysis
First we need to compute the duration of assets and liabilities
Duration of assets (DA)= (5000/20000)*3+ (5000/20000)*2
DA= 1.25 years
Duration of Liabilities (DL)= (3000/10000)*1+(5000/10000)*2+(2000/10000)*5
DL= 2.30 years
Duration Gap (DGAP) = 1.25-(10000/20000)*2.30
DGAP= 1.25- 1.15= 0.10 years
So, duration gap is 0.10 years.
This shows that average duration of assets is greater than the average duration of liabilities. This indicates that on an average basis assets are more price sensitive than liabilities.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.