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:

Marginal Cost

The increase in total cost that arises from an extra unit of production, pivotal for decision-making in production processes.

Diminishing Returns

A principle stating that as more of a variable input is combined with a fixed input, the incremental gains in output will eventually decrease.

Increasing Returns

This refers to a scenario in economics where, as the quantity of input increases, the rate of output increases at a faster rate, leading to economies of scale.

Long-Run Total Cost

The aggregate cost of production when all factors of production are variable and the scale of operation can change.