Hedge Row Bank has the following balance sheet (in millions):
Assets: 160 Liab: 128
Equity: 32
Total: 160 160
The duration of the assets is 6 years and the duration
of the liabilities is 4.5 years. The bank is expecting interest
rates to fall from 11 percent to 10 percent over the next
year.
a. What is the duration gap for Hedge Row Bank?
(Round your answer to 2 decimal places. (e.g.,
32.16))
b. What is the expected change in net worth for
Hedge Row Bank if the forecast is accurate? (Enter your
answer in millions rounded to 3 decimal places. (e.g.,
32.161))
c. What will be the effect on net worth if
interest rates increase 100 basis points?
(Negative amount should be indicated by a
minus sign. Enter your answer in millions rounded
to 3 decimal places. (e.g.,
32.161))
d. If the existing interest rate on the
liabilities is 7 percent and that on the assets is 11 percent, what
will be the effect on net worth of a 1 percent increase in interest
rates? (Negative amount should be
indicated by a minus sign. Do not round intermediate calculations.
Enter your answer in millions rounded to 4 decimal places. (e.g.,
32.1616))
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Hedge Row Bank has the following balance sheet (in millions): Assets: 160 Liab: 128 &n
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