CNDF Bank has assets totaling $250 million with an average duration of 3.5 years, and liabilities totaling $225 million, with an average duration of 5 years. CNDF Bank is subject to Basel III requirements, and therefore has to maintain a capital/asset ratio of at least 8%. Determine if CNDF Bank complies with the requirement if interest rates increase from 6% to 7%.
CNDF Bank has assets totaling $250 million with an average duration of 3.5 years, and liabilities totaling $225 million, with an average duration of 5 years. CNDF Bank is subject to Basel III requirements, and therefore has to maintain a capital/asset ratio of at least 8%. Determine if CNDF Bank complies with the requirement if interest rates increase from 6% to 7%.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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CNDF Bank has assets totaling $250 million with an average duration of 3.5 years, and liabilities totaling $225 million, with an average duration of 5 years. CNDF Bank is subject to Basel III requirements, and therefore has to maintain a capital/asset ratio of at least 8%. Determine if CNDF Bank complies with the requirement if interest rates increase from 6% to 7%.
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