A financial institution only has one coupon bond on the asset side, with a maturity of 5 years, a principal of 1000 AUD and a coupon rate of 4%. On the liability side the financial institution has 8 deposits of each 100 AUD in face value, with a maturity of 1 year and coupon rate (also in the final year in addition to the face value) of 1%. The current interest rate is 2%.
a) Calculate the value of the asset side coupon bond.
b) Calculate the value of the total liabilities.
c) Calculate the asset duration and the liablity duration.
d) Calculate the leverage adjusted duration gap.
Consider 4-year coupon bond with coupon C and face value 100. The current market interest rate is 10%.
a) The coupon C is 5. Calculate the duration of this coupon bond.
b) The duration of the zero coupon bond is 3.5. Calculate the coupon C.
c) Now consider a coupon bond with face value 200 and coupon C = 10. Calculate the duration of this coupon bond and compare your findings to a).
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