What will be effect on net worth if interest rates increse

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Hedge Row Bank has the following balance sheet (in millions): Assets $270 Liabilities $216 Equity 54 Total $270 Total $270 The duration of the assets is 8 years and the duration of the liabilities is 6.2 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year.

a. What is the duration gap for Hedge Row Bank?

b. What is the expected change in net worth for Hedge Row Bank if the forecast is accurate?

c. What will be the effect on net worth if interest rates increase 100 basis points?

d. If the existing interest rate on the liabilities is 6 percent and that on the assets is 10 percent, what will be the effect on net worth of a 1 percent increase in interest rates?

Reference no: EM131081638

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