Question

(TCO E & F) A bank has three assets. It has $75 million invested in consumer loans with a 3 year duration, $39 million invested in T-Bonds with a 16 year duration and $39 million in 6 month maturity T-Bills. What is the duration of the bank's asset portfolio in years? Group of answer choices 3.95 years 4.83 years 6.50 years 7.38 years 11.51 years

Answer 1

6.50 years

Step-by-step explanation:

Data provided in the question:

Amount invested in consumer loans = $75 million

Duration of consumer loan = 3 year

Amount invested in T-Bonds = $39 million

Duration of T-Bonds = 16 year

Amount invested in T-Bills = $39 million

Duration of T-Bills = 6 months

Now,

The duration of the bank's asset portfolio in years

=
`[(75)/(75+39+19.5)*3] + [(39)/(75+39+19.5)* 16] + [(39)/(75+39+19.5)* 0.5]`

= 6.50

Hence,

The answer is option 6.50 years