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Question
A bank has a negative duration gap. Interest rates decline. Which one of the following best describes the effects of the interest rate change?
A. The bank's market value of equity is unchanged since the market value of its assets and liabilities move in the same direction.
B. The bank's market value of equity goes up because the market value of its assets goes up by more than the market value of its liabilities goes down.
C. The bank's market value of equity goes down because the market value of its assets goes up by more than the market value of its liabilities goes down.
D. The bank's market value of equity goes down because the market value of its assets goes down by more than the market value of its liabilities goes down.
E. The bank's market value of equity goes down because the market value of its liabilities increases by more than the market value of its assets increases.
Answer
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