The Numbers Provided by Fourth Bank of Duration Are in Thousands

question 110

Multiple Choice

The numbers provided by Fourth Bank of Duration are in thousands of dollars.

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 0.003 years.Fourth Bank of Duration assigns a duration of zero (0) to demand deposits.
-If the relative change in interest rates is a decrease of 1 percent,calculate the impact on the bank's market value of equity using the duration approximation. (That is, $\Delta$ R/(1 + R) = -1 percent)

• A)The bank's market value of equity increases by $325,550.
• B)The bank's market value of equity decreases by $325,550.
• C)The bank's market value of equity increases by $336,500.
• D)The bank's market value of equity decreases by $336,500.

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Individualism

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Inequality

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