What is this bank change in net worth

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Reference no: EM132057438

1. 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.

2. A bank with a negative duration gap can reduce its interest rate risk by:

A. increasing duration of its assets

B. decreasing duration of its liabilities

C. selling interest rate futures

D. All of the above

E. Only (A) and (B)

Reference no: EM132057438

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