A Bank Has an Average Asset Duration of 5 Years

question 143

Multiple Choice

A bank has an average asset duration of 5 years and an average liability duration of 3 years.This bank has total assets of $500 million and total liabilities of $250 million.Currently,market interest rates are 10 percent.If interest rates fall by 2 percent (to 8 percent) ,what is this bank's change in net worth?

• A)Net worth will decrease by $31.81 million.
• B)Net worth will increase by $31.81 million.
• C)Net worth will increase by $27.27 million.
• D)Net worth will decrease by $27.27 million.
• E)Net worth will not change at all.

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