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A bank has mortgage loans with a current market value of 325 million euros. The...

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Finance

A bank has mortgage loans with a current market value of 325 million euros. The duration of this mortgage loan portfolio is 15.9 years. This bank finances its mortgages by issuing CDs and the current value of these debts is 275 million euros. The duration of these commitments is 4.6 years.

a) What is the initial duration of equity of this bank? 2 points

b) Explain how this bank can hedge an interest rate risk by restructuring its balance sheet? 2 points

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