If Fifth National Bank's Asset Duration Exceeds Its Liability Duration

question 33

Multiple Choice

If Fifth National Bank's asset duration exceeds its liability duration and if interest rates rise,the bank's net worth will _________________.

• A)decrease
• B)increase
• C)stabilize
• D)be unaffected
• E)None of the options is correct.

---

Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating how a change in sales will affect profits.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenue.

Contribution Margin Ratio

The percentage of sales that exceeds variable production costs, indicating how much of each sales dollar is available to cover fixed costs and generate profit.

Variable Expenses

Expenses that vary directly with changes in business activities or production levels, similar to variable costs, including items like shipping fees and sales commissions.