2. The balance sheet of Alliance Bank appears as follows: Assets Liabilities and Maturities Short-term securities and Short-term and floating adjustable rate loans $220 rate funds Duration: 6 months Duration: 6 months $560 Fixed rate loans Fixed rate funds Duration: 8 years Nonearning Assets 700- Duration: 30 months 270 80 Equity 170 Total assets $1,000 Total Liabilities and Net Worth $1000 a. Calculate the duration of this balance sheet. [5 Marks] b. Assuming that the required rate of return is 8%, what would be the effect on the bank's economic value if interest rates increased by 1%. [3 Marks] c. Suppose that the expected change in EVE is unacceptable to management. What outcome could management take to reduce this change? [2 Marks] (10 Marks)

2. The balance sheet of Alliance Bank appears as follows: Assets Liabilities and Maturities Short-term securities and Short-term and floating adjustable rate loans $220 rate funds Duration: 6 months Duration: 6 months $560 Fixed rate loans Fixed rate funds Duration: 8 years Nonearning Assets 700- Duration: 30 months 270 80 Equity 170 Total assets $1,000 Total Liabilities and Net Worth $1000 a. Calculate the duration of this balance sheet. [5 Marks] b. Assuming that the required rate of return is 8%, what would be the effect on the bank's economic value if interest rates increased by 1%. [3 Marks] c. Suppose that the expected change in EVE is unacceptable to management. What outcome could management take to reduce this change? [2 Marks] (10 Marks)

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter4: The Balance Sheet And The Statement Of Shareholders' Equity

Section: Chapter Questions

Problem 16P: Ratios Analyses: McCormick Refer to the information for McCormick above. Additional information for...

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