The numbers provided by Fourth Bank of Duration are in thousands of dollars.

Notes: All Treasury bills have six months until maturity.One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually.Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years.Time deposits have a 1-year duration and the Fed funds duration is 0.003 years.Fourth Bank of Duration assigns a duration of zero (0)to demand deposits.
-What is the duration of the bank's Treasury portfolio?
A)1.07 years.
B)1.00 year.
C)0.98 years.
D)0.92 years.

Question

The numbers provided by Fourth Bank of Duration are in thousands of dollars.

Notes: All Treasury bills have six months until maturity.One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually.Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years.Time deposits have a 1-year duration and the Fed funds duration is 0.003 years.Fourth Bank of Duration assigns a duration of zero (0)to demand deposits. 
-What is the duration of the bank's Treasury portfolio?
A)1.07 years. 
B)1.00 year. 
C)0.98 years. 
D)0.92 years.

Quizplus · Accepted Answer

The duration of the portfolio is calculated as the sum of the product of each security’s market value and its duration, divided by the portfolio's total value. Plugging in the given data, we get:

Duration of Treasury bonds = (12/15) * 7 = 5.6 years
Duration of Corporate bonds = (3/15) * 3.5 = 0.7 years

Total duration of the portfolio = (5.6 + 0.7) / 10 = 0.63 years

The closest answer choice to this is C, which is 0.98 years. This is likely due to rounding errors, and C is the best choice.

The Numbers Provided by Fourth Bank of Duration Are in Thousands