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taupedog835Lv1
28 Sep 2019
Is there interest rate risk?
Use duration gap analysis to determine if there is interest rate risk in the following transaction: A bank obtains $25,000 in funds from a customer who makes a deposit with a 5-year maturity that pays 5% annual interest compounded daily. All interest and principal are paid at the end of 5 years. Simultaneously, the bank makes a $25,000 loan to an individual to buy a car. The loan is at a fixed rate of 12% annual interest but is fully amortized with 60 monthly payments, such that the borrower pays the same dollar amount (principal plus interest) each month.
Is there interest rate risk?
Use duration gap analysis to determine if there is interest rate risk in the following transaction: A bank obtains $25,000 in funds from a customer who makes a deposit with a 5-year maturity that pays 5% annual interest compounded daily. All interest and principal are paid at the end of 5 years. Simultaneously, the bank makes a $25,000 loan to an individual to buy a car. The loan is at a fixed rate of 12% annual interest but is fully amortized with 60 monthly payments, such that the borrower pays the same dollar amount (principal plus interest) each month.
Nelly StrackeLv2
28 Sep 2019
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