Duration Bank Has the Following Assets and Liabilities as of Year-End

question 54

Multiple Choice

Duration Bank has the following assets and liabilities as of year-end. All assets and liabilities are currently priced at par and pay interest annually. What is the change in the value of its liabilities if all interest rates decrease by 1 percent?

• A)Approximately $2.003 million.
• B)Approximately -$2.355 million.
• C)Approximately $2.697 million.
• D)Approximately $2.906 million.
• E)Approximately $3.211 million.

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Definitions:

Profit Function

It describes a company's earnings or losses by relating total revenue to total costs, identifying the maximum profit available to a firm.

Price Elasticity

An assessment of the variation in the amount of a product that is either bought or sold, as a reaction to alterations in its cost.

Marginal Revenue

The extra revenue obtained by selling an additional unit of a product or service.

International Marketing Agreement

An arrangement between parties from different countries to promote and distribute a product or service globally.