(Answered) A bank has two 3-year commercial loans with a present value

Finance

A bank has two 3-year commercial loans with a present value of $70 million. The first is a $30 million loan that requires a single payment of $37.8 million in three years, with no other payments till then. The second loan is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in three years.

a. What is the duration of the bank’s commercial loan portfolio?

b. What will happen to the value of its portfolio if the general level of interest rates increases from 8% to 8.5%?

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