The Numbers Provided by Fourth Bank of Duration Are in Thousands

question 54

Multiple Choice

The numbers provided by Fourth Bank of Duration are in thousands of dollars. Notes: All Treasury bills have six months until maturity. One-year Treasury notes are priced at par and have a coupon of 7 percent paid semiannually. Treasury bonds have an average duration of 4.5 years and the loan portfolio has a duration of 7 years. Term deposits have a 1-year duration and the Interbank deposits duration is 0.003 years. Fourth Bank of Duration assigns a duration of zero (0) to demand deposits. 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.

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Definitions:

Sex Hormones

Biochemical substances produced by the endocrine system that regulate the development and function of reproductive organs and influence secondary sexual characteristics.

Epiphyseal Plate

A growth plate located at the ends of long bones, where new bone tissue is produced during childhood and adolescence.

Long Bones

Bones that are longer than they are wide, primarily consisting of a shaft and two ends, which are mostly found in the appendicular skeleton such as the femur and humerus.

Articular Cartilage

Smooth, white tissue that covers the ends of bones where they come together to form joints, minimizing friction and absorbing shock.