Assume a Bank Has $200 Million of Assets with a Duration

question 122

Multiple Choice

Assume a bank has $200 million of assets with a duration of 2.5,and $190 million of liabilities with a duration of 1.05. If interest rates increase from 5 percent to 6 percent,the net worth of the bank falls by

• A)$1 million.
• B)$2.4 million.
• C)$3.6 million.
• D)$4.8 million.

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Definitions:

Total Contribution Margin

The difference between total sales revenue and total variable costs, representing the amount available to cover fixed expenses and generate profit.

Variable Cost

Costs that fluctuate with the level of production or sales, such as raw materials or commission fees.

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales activities within a certain range or period.

Break-Even Point

The level of production or sales at which total revenues equal total costs, resulting in no net loss or gain.