Assume a Bank Has $200 Million of Assets with a Duration

question 122

Multiple Choice

Assume a bank has $200 million of assets with a duration of 2.5,and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent,the net worth of the bank falls by

• A)$1 million.
• B)$2.4 million.
• C)$3.6 million.
• D)$4.8 million.

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Definitions:

Functional Fixedness

A cognitive bias that limits a person to use an object only in the way it is traditionally used.

Numerical Information

Data that is expressed in numbers, allowing for quantifiable comparisons and statistical analysis.

Scrabble

A board game in which players build words on a grid with lettered tiles for points based on letter value and placement.

Arrangement

The act of organizing or placing things in a particular order.