Question

First National Bank

AssetsLiabilities
Rate-sensitive$20 million$50 million
Fixed-rate$80 million$50 million
Assuming that the average duration of its assets is five years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to decline by ________ of the total original asset value.
A. 5 percent
B. 10 percent
C. 15 percent
D. 25 percent

Answer

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