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Explanation:
Bank's new net worth
= [–Average duration of assets × × Total assets]
− [–Average duration liabilities × × Total liabilities]
= [−4 × × $180\frac{0.04}{(1 + 0.09)}150$ million] = −26.42 − (−16.51) = −$9.90`8 million
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Q.5421 ABC Bank has an average asset duration of four years, an average liability duration of three years, total liabilities amounting to $150 million, and total assets valued at $180 million. Initially, interest rates stood at 9 percent, but suddenly, they increased to 13 percent. What is the bank's new net worth after the increase in interest rates?
A
-$26.42 million
B
-$16.51 million
C
-$9.91 million
D
-$1.10 million