A Bank Has an Average Asset Duration of 5 Years

question 56

Multiple Choice

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 to 8 percent, what is this bank's change in net worth?

• A) Net worth will decrease by $31.82 million
• B) Net worth will increase by $31.82 million
• C) Net worth will increase by $27.27 million
• D) Net worth will decrease by $27.27 million
• E) Net worth will not change at all

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Definitions:

Sales Budget

A financial plan that estimates future sales in terms of units and revenue.

Finished Goods Inventory

Items that have completed the manufacturing process and are ready to be sold to customers.

Specialized Electrical Switches

Electrical switches designed for specific functions or applications, often requiring custom designs or specifications to meet unique operational or safety standards.

Variable Costing

A pricing approach that incorporates solely the variable costs of production—such as direct materials, direct labor, and variable manufacturing overhead—into the cost per unit of products.