The Following Is an FI's Balance Sheet ($Millions)

question 63

Multiple Choice

The following is an FI's balance sheet ($millions) . Notes to Balance Sheet: Munis are 2-year 6 percent annual coupon municipal notes selling at par. Loans are floating rates, repriced quarterly. Spot discount yields for 91-day Treasury bills are 3.75 percent. GICs are 1-year pure discount certificates of deposit paying 4.75 percent.
What will be the impact, if any, on the market value of the bank's equity if all interest rates increase by 75 basis points?

• A)The market value of equity will decrease by $15,750.
• B)The market value of equity will increase by $15,750.
• C)The market value of equity will decrease by $426,825.
• D)The market value of equity will increase by $426,825.
• E)There will be no impact on the market value of equity.

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Definitions:

Social Norms

The unwritten rules that dictate the acceptable behavior within a society or group.

Rituals

Established sequences of activities or ceremonies performed in a particular context, often reflecting values or beliefs of a community or culture.

Predictable

Characterized by being able to be foreseen or expected based on certain indicators or patterns.

Prejudice

involves preconceived opinions or judgments formed without factual basis or experience, often leading to unfair treatment of individuals or groups.