Exam 9: Interest Rate Risk II

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. -What is the bank's leverage adjusted duration gap?

U.S. Treasury quotes from the WSJ on Oct. 15, 2003: -What is the duration of the above Treasury note? Use the asked price to calculate the duration.Recall that Treasuries pay interest semiannually.

Immunizing net worth from interest rate risk using duration matching requires that the duration match must be realigned periodically as the maturity horizon approaches.

The difference between the changes in the market value of assets and market value of liabilities for a given change in interest rates is,by definition,the change in the FI's net worth.

What is the FI's interest rate risk exposure?

The following is an FI's balance sheet ($millions). Notes to Balance Sheet. Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent. -What is the duration of the municipal notes (the value of x)?

Which of the following statements about leverage-adjusted duration gap is true?

For small change in interest rates,market prices of bonds are inversely proportional to their

The value for duration describes the percentage increase in the price of a fixed-income asset for a given increase in the required yield or interest rate.

Duration of a zero coupon bond is equal to the bond's maturity.

Managers can achieve the results of duration matching by using these to hedge interest rate risk.

A bond is scheduled to mature in five years.Its coupon rate is 9 percent with interest paid annually.This $1,000 par value bond carries a yield to maturity of 10 percent.What is the bond's current market price?

Calculate the duration of a two-year corporate bond paying 6 percent interest annually,selling at par.Principal of $20,000,000 is due at the end of two years.

Calculate the modified duration of a two-year corporate loan paying 6 percent interest annually.The $40,000,000 loan is 100 percent amortizing,and the current yield is 9 percent annually.

Dollar duration of a fixed-income security is defined as

What is the impact on the dealer's market value of equity per $100 of assets if the change in all interest rates is an increase of 0.5 percent? [i.e. , $\Delta$ R = 0.5 percent]

The cost in terms of both time and money to restructure the balance sheet of large and complex FIs has decreased over time.

Third Duration Investments has the following assets and liabilities on its balance sheet. The two-year Treasury notes are zero coupon assets. Interest payments on all other assets and liabilities occur at maturity. Assume 360 days in a year. -What is the duration of this bond?

What is the duration of an 8 percent annual payment two-year note that currently sells at par?

Which of the following statements is true?