2. The balance sheet of Alliance Bank appears as follows: Assets Liabilities and Maturities Short-term securities and Short-term and floating adjustable rate loans $220 rate funds Duration: 6 months Duration: 6 months $560 Fixed rate loans Fixed rate funds Duration: 8 years Nonearning Assets 700- Duration: 30 months 270 80 Equity 170 Total assets $1,000 Total Liabilities and Net Worth $1000 a. Calculate the duration of this balance sheet. [5 Marks] b. Assuming that the required rate of return is 8%, what would be the effect on the bank's economic value if interest rates increased by 1%. [3 Marks] c. Suppose that the expected change in EVE is unacceptable to management. What outcome could management take to reduce this change? [2 Marks] (10 Marks)

2. The balance sheet of Alliance Bank appears as follows: Assets Liabilities and Maturities Short-term securities and Short-term and floating adjustable rate loans $220 rate funds Duration: 6 months Duration: 6 months $560 Fixed rate loans Fixed rate funds Duration: 8 years Nonearning Assets 700- Duration: 30 months 270 80 Equity 170 Total assets $1,000 Total Liabilities and Net Worth $1000 a. Calculate the duration of this balance sheet. [5 Marks] b. Assuming that the required rate of return is 8%, what would be the effect on the bank's economic value if interest rates increased by 1%. [3 Marks] c. Suppose that the expected change in EVE is unacceptable to management. What outcome could management take to reduce this change? [2 Marks] (10 Marks)

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 22MC: A company collects an honored note with a maturity date of 24 months from establishment, a 10%...

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