If the Relative Change in Interest Rates Is a Decrease

question 109

Multiple Choice

If the relative change in interest rates is a decrease of 1 percent, calculate the impact on the bank's market value of equity using the duration approximation. (That is, ΔR/(1 + R) = -1 percent)

• A)The bank's market value of equity increases by $325,550.
• B)The bank's market value of equity decreases by $325,550.
• C)The bank's market value of equity increases by $336,500.
• D)The bank's market value of equity decreases by $336,500.
• E)There is no change in the bank's market value of equity. [Refer to: 9-108]

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Definitions:

Long-Term Investments

Assets that a company intends to hold for more than one year, typically including stocks, bonds, or real estate.

Bonds Retired

The act of paying off or buying back issued bonds before their maturity date.

Machinery

Industrial or commercial devices or equipment designed to perform specific tasks, often contributing to the production of goods.

Indirect Method

A way of preparing the cash flow statement where net income is adjusted for changes in balance sheet accounts to reflect cash transactions.