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.

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Definitions:

Residual Income

The amount of income that exceeds the minimum rate of return expected on a project or investment.

Required Rate Of Return

The minimum annual percentage return an investor expects to achieve by investing in a particular asset or project.

Net Operating Income

A measure of a company's profitability, calculated as the difference between total revenue and operating expenses, excluding taxes and interest.

Average Operating Assets

The average value of the assets used in the operations of a business over a specific period.