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Calculating and Using Repricing & Duration GAP
Calculating and Using Repricing & Duration GAP
McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Integrated Mini Case for Chapter 9: Calculating and Using Repricing & Duration GAP State Bankâs balance sheet is listed below. Market yields and durations (in years) are in parenthesis, and amounts are in millions. Assets Liabilities and Equity Cash $31 Demand deposits $253 Fed funds (2.05%, 0.02) 150 Savings accounts (0.5%, 1.25) 50 3-month T-bills (3.25%, 0.22) 250 MMDAs (3.5%, 0.50) 8-year T-bonds (6.50%, 7.55) 250 (no minimum balance requirement) 460 5-year munis (7.20%, 4.25) 50 3-month CDs (3.2%, 0.20) 200 6-month consumer loans (5%, 0.42) 250 1-year CDs (3.5%, 0.95) 350 5-year car loans (6%, 3.78) 350 5-year CDs (5%, 4.85) 350 7-month C&I loans (4.8%, 0.55) 200 Fed funds (2%, 0.02) 225 2-year C&I loans (4.15%, 1.65) 275 Repos (2%, 0.05) 290 Fixed-rate mortgages (5.10%, 0.48) 6-month commercial paper (maturing in 5 months) 450 (4.05%, 0.55) 300 Fixed-rate mortgages (6.85%, 0.85) Subordinate notes: (maturing in 1 year) 250 1-year fixed rate (5.55%, 0.92) 200 Fixed-rate mortgages (5.30%, 4.45) Subordinated debt: (maturing in 5 years) 275 7-year fixed rate (6.25%, 6.65) 100 Fixed-rate mortgages (5.40%, 18.25) Total liabilities $2,778 (maturing in 20 years) 355 Premises and equipment 20 Equity 378 Total assets $3,156 Total liabilities and equity $3,156 a. What is the repricing gap if the planning period is six months? One year? b. What is State Bankâs duration gap? c. What is the impact over the next six months on net interest income if interest rates on RSAs increase 50 basis points and on RSLs increase 35 basis points? Explain the results. d. What is the impact over the next year on net interest income if interest rates on RSAs decrease (increase) 35 basis points and on RSLs decrease (increase) 50 basis points? Explain the results. e. Use these duration values to calculate the expected change in the value of the assets and liabilities of State Bank for a predicted decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities. f. What is the change in equity value forecasted from the duration values for decrease of 0.35 percent in interest rates on assets and 0.50 percent on liabilities? 2
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