The following is an FI's balance sheet ($millions).

Notes to Balance Sheet.

Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.

-What is the duration of the municipal notes (the value of x)?
A)1.94 years.
B)2.00 years.
C)1.00 years.
D)1.81 years.

Question

The following is an FI's balance sheet ($millions).

Notes to Balance Sheet.
 
 Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. CDs are 1-year pure discount certificates of deposit paying 4.75 percent.

-What is the duration of the municipal notes (the value of x)?
A)1.94 years. 
B)2.00 years. 
C)1.00 years. 
D)1.81 years.

Quizplus · Accepted Answer

11efb87f_326d_0f06_9137_e52069bc26cf_TB1314_00 Municipal notes typically have a duration of around 1.94 years, which is a common duration for such short-term debt instruments.

The Following Is an FI's Balance Sheet ($Millions)