Question

(2.)Suppose the First National Bank of Duluth has $500.00 million in total assets with an average asset duration offive years. Assume that the bank’s liabilities are comprisedof $86.75 million of demand deposits and $163.75 million inbonds with a 4.00% coupon rate (which pays annually) and a fiveyear time-to-maturity. Further assume that currentmarket interest rates are at 9.00% per annum.

(a.)(2 point) Calculate the duration of the bank’s bonds.

Answer 1

4/26/2019 [Assuming today] 4/26/2024 [5 years from today] Settlement date Maturity date Annual coupon rate, COUPON Market interest rate (YTM), YLD # of Frequencies in a year, FREQUENCY Bond's basis, BASIS Duration of the bank's bonds 4.00% 9.00% 1 [1 if annual coupon; 2 if semiannual coupon; 4 if quarterly coupon] 0 [For US(NASD) 30/360] 4.58 [Ref: NOTE NOTE Duration of the bank's bonds is calculated using EXCEL FUNCTION DURATION(settlement,maturity,coupon,yld,frequency,basis) where settlements 4/26/2019; maturity = 4/26/2024 ; coupons 4.00%; yld = 9.00% ; frequency-1; basis-0; Here, value for frequency is 1 as it pays annual coupon; basis 0 as it is US (NASD) 30/360 4/26/2019 [Assuming today] /26/2024 [5 years from today] 1 Settlement date 2 Maturity date Annual coupon rate, COUPON 4 Market interest rate (YTM), YLD 5 # of Frequencies in a year, FREQUENCY 6 Bond's basis, BASIS 7 Duration of the bank's bonds 400% 9,00% 1 1 if annual coupon; 2 if semiannual coupon; 4 if quarterly coupon] 0 [For US(NASD) 30/360] DURATION(B1,B2,B3,B4,B5,B6) [Ref: NOTE