9. Suppose that you are the
manger of the Bank One that has $20 million of fixed assets, $30
million of variable interest rate assets, $25 million of fixed
liabilities and $40 million of variable interest rate
liabilities

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Question: 9. Suppose that you are the manger of the Bank One that has $20 million of fixed assets, $30 mill…
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a. Is the average duration of
assets greater than the average duration of liabilities?
Explain

If the average duration of
assets is 6 year and the average duration of liabilities is 4
year,


b. Conduct duration analysis
for the bank, explain verbally and show numerically what will
happen to the bank capital if short-term interest rates rise by 3
percentage points.


c. What action should the
bank take to reduce interest rate risk? Explain


d. Conduct duration analysis
for the bank, explain verbally and show numerically what will
happen to the bank capital if short-term interest rates fall by 3
percentage points.


e. What action should the
bank take to reduce interest rate risk? Explain


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