Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 a) Calculate the equity (total asset – total liability) to asset ratio of the bank (Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides;
Can you pleas provide clear answers for B, convexity and duration.
Thank you for your time.
Question 3.
Bond
Consider a bank with the following balance sheet (M means million):
Assets Value Duration of the Asset Convexity of the Asset
5yr bond bought at a yield of 3.4% (lending money) $550M 4.562
12.026
12yr bond bought at a yield of 4% (lending money) $800M 9.453
53.565
Liabilities Value Duration of the Liability Convexity of the Liability
2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384
4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206
a) Calculate the equity (total asset – total liability) to asset ratio of the bank
(Hint: equity to asset ratio = total equity/total asset)
b) Calculate the duration and convexity of the both asset and liability sides;
Step by step
Solved in 2 steps with 4 images
