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Consider the following balance sheet for an FI: Assets Duration = 7 years Assets=$1000 Liabilities Duration = 2 year  Liabilities=$950 Equity $50   Question: Compute the duration of equity and use it to approximate the change in the value of equity if interest rates increase by .25% (25 basis points) if interest rates are currently 3%

Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute the price of the loan next year (just before the first coupon is paid) if the borrower is upgraded to an A rating .

The expected return on a loan is its interest rate.

In practice, the duration gap of banks is unaffected by how sensitive deposits are to interest rate changes. 

Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute next year’s expected value for the loan.

What is the duration of a four-year, Treasury bond that pays a 4 percent coupon annually and is trading at a yield to maturity of 5%?

One of the conflicts of interest inherent in investment banking is “spinning,” which investment banks underprice issues to favor some buy-side clients

A load W is to be placed on the 60-lb plate. Determine the magnitude of W and the point where it should be placed if the tension is to be 50 lb. in each of the three wires. Include labels and units in your answers below. _______ _______ _______

Banks have stronger incentives to monitor loans sold without recourse than they do loans sold with recourse.

A contractual commitment to make a loan up to a stated amount at a given interest rate in the future is a loan commitment.