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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Definitions:

Scienter

In legal contexts, scienter is the knowledge or intent to deceive, defraud, or violate statutes or regulations.

Representations

Statements or assertions made by one party to another, often regarding the condition or status of something, which can impact agreements or contracts.

Innocent Misrepresentation

A misrepresentation made without fault or knowledge of its falsity, which may allow the misled party to void the contract but not claim damages.

Intentionally Deceptive

Deliberately misleading actions or statements designed to make someone believe something that is not true.