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FIN 4243: Commercial Bank Management

Homework Assignment 2

Please show work as to how you got your answers. For calculator solutions, please give calculator inputs. No credit for

1. A bond’s duration is 7.6 years and the yield is 3.1%, what is the modified duration of this bond? (2 points)

2. A treasury bill currently sells for $9,891, has a face value of $10,000 and has 39 days to maturity.  What is the bank discount rate on this security? What is the YTM or bond-equivalent yield? (3 points)

3. You have the following details about the First Banc Corp. bond:

Maturity = 9 years, Coupon rate (annual) = 5.25%, Yield to maturity = 4.2%, Par value = $1,000.

Calculate the value of the bond, its duration and modified duration. What will be the change in value if interest rates go up by 1.0%? (6 points)

4. A bank’s portfolio has the following assets:

182-day T-bills = 11%, 11-year zero coupon bond = 29%, 18-year zero coupon bond =19%,

T-bond portfolio with duration of 3 years = 26%, and the balance amount in Cash.

What is the duration of this portfolio? (4 points)

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