Suppose you own a bank that consists of both bonds in question 2. You have 3050 bonds in the 6.8%-coupon bonds as interest-sensitive assets, and 3000 bonds in the bonds of 2 d) as interest-sensitive liabilities. Answer the following questions;
a) What is the duration and convexity of your bond portfolio? What assumption do you apply for these measurements of interest rate risk?
b) What is the duration GAP for your bank?
c) What is the change of Economic Value of Equity (EVE) for the bank if the interest rate increases with 0.15%?
d) What are the assumptions for analysis in using change of EVE to measure interest rate risk?