A bank has an average asset duration of 5 years and an average liability duration of 3 years. This bank has total assets of $500 million and total liabilities of $250 million. Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's change in net worth? 6 A. Net worth will decrease by $31.81 million. B. Net worth will increase by $31.81 million. C. Net worth will increase by $27.27 million. D. Net worth will decrease by $27.27 million.
A bank has an average asset duration of 5 years and an average liability duration of 3 years. This bank has total assets of $500 million and total liabilities of $250 million. Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's change in net worth? 6 A. Net worth will decrease by $31.81 million. B. Net worth will increase by $31.81 million. C. Net worth will increase by $27.27 million. D. Net worth will decrease by $27.27 million.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A bank has an average asset duration of 5 years and an average liability duration of 3 years.
This bank has total assets of $500 million and total liabilities of $250 million. Currently,
market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is
this bank's change in net worth?
6
A. Net worth will decrease by $31.81 million.
B. Net worth will increase by $31.81 million.
C. Net worth will increase by $27.27 million.
D. Net worth will decrease by $27.27 million.
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