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  3. 4. national bank current balance sheet appears bel

4. National Bank current balance sheet appears below. All assets and liabilities are currently priced...

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Accounting

4. National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

Assets

Amount ($ millions)

Annual Rate

Liabilities

Amount ($ millions)

Annual Rate

1-year bonds

$60

7%

1-year CD

$50

5%

10-year loan

$40

12%

2-year CD

$40

6%

Equity

$10

Total

$100

Total

$100

a. What is the weighted average maturity of assets?

b. What is the weighted average maturity of liabilities?

c. What is market value of the ten-year loan if all market interest rates increase by 2

percent?

d. What is market value of the two-year CD if all market interest rates increase by 2

percent?

e.What is the impact on the FI's equity of a 2 percent overall increase in market

interest rates on all fixed-rate instruments? Briefly discuss your results.

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