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Question
A bank with total assets of $271 million and equity of $31 million has a leverage adjusted duration gap of +0.21 years. One-year maturity notes are currently priced at par and are paying 4.5 percent annually. Two-year maturity notes are currently priced at par and are paying 5 percent annually. The terms of a swap of $100 million notional value of liabilities' payments are 4.95 percent annual fixed payments in exchange for floating rate payments tied to the annual discount yield.
What is the forward one-year discount yield expected next year?
A. 5.013 percent.
B. 5.530 percent.
C. 4.500 percent.
D. 5.000 percent.
E. 4.950 percent.
Answer
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