9-108 If All Interest Rates Decline 90 Basis Points (

question 38

Multiple Choice

9-108 If all interest rates decline 90 basis points (R/(1+R) = -90 basis points) ,what is the change in the market value of equity?

• A)-$4.430 million.
• B)+$3.925 million.
• C)+$4.378 million.
• D)+$2.550 million.
• E)+$0.022 million.

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Definitions:

Required Reserves

The minimum amount of reserves that a bank must hold as mandated by the central bank or regulatory authority, usually a percentage of the bank's deposit liabilities.

Excess Reserves

Funds held by banks over and above the legally mandated reserve requirement, which can be lent out to generate additional income or held as a safeguard against potential withdrawals.

Bank A

A generic term used to denote a financial institution licensed to receive deposits, offer loans, and provide other financial services to its customers.

Inflationary GDP Gap

The excess amount by which the actual gross domestic product (GDP) exceeds the potential GDP, leading to inflation.