Assume you are the manager of a bank with the balance sheet as shown below. Determine the maturity GAP and duration GAP for the bank. What will happen to the value or net income of the bank if interest rates go up or down? Solution Answer: For Assets: Short term investment = 0.5 x $10 = $5 Long term investment = 3 x $10 = $30 Loans maturing in less than 1 year = 0.5 x $10 = $5 Loans maturing in more than 1 year = 10 x $50 = $500 Total = $540 For liabilities : CD maturing in less than a year = 0.5 x $20 = $10 CD maturing in more than a year = 2 x $40 = $80 Federal funds = 0.1 x $10 = $1 Total liabilities = $91 Thesefore maturity gap = $540 - $91.

1. Assume you are the manager of a bank with the balance sheet as shown below. Determine the
maturity GAP and duration GAP for the bank. What will happen to the value or net income of
the bank if interest rates go up or down?
Solution
Answer: For Assets:
Short term investment = 0.5 x $10 = $5
Long term investment = 3 x $10 = $30
Loans maturing in less than 1 year = 0.5 x $10 = $5
Loans maturing in more than 1 year = 10 x $50 = $500
Total = $540
For liabilities :
CD maturing in less than a year = 0.5 x $20 = $10
CD maturing in more than a year = 2 x $40 = $80
Federal funds = 0.1 x $10 = $1
Total liabilities = $91
Thesefore maturity gap = $540 - $91