Use the Following Table to Answer the Question

question 117

Multiple Choice

Use the following table to answer the question :

-Assuming that the average duration of its assets is four years,while the average duration of its liabilities is three years,then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.

• A)decline;5 percent
• B)decline;10 percent
• C)decline;15 percent
• D)increase;20 percent

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Definitions:

Price Elasticity of Demand

The response level of the demand for a product to variations in its price, determined by dividing the percentage change in the demanded quantity by the percentage change in the price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price.

Unit Elasticity

Demand or supply for which the elasticity coefficient is equal to 1; means that the percentage change in the quantity demanded or quantity supplied is equal to the percentage change in price.

Inelastic

A description of a product or service's demand when consumers' demand is relatively insensitive to price changes.