Question

First National Bank

AssetsLiabilities
Rate-sensitive$40 million$50 million
Fixed-rate$60 million$50 million
Assuming that the average duration of its assets is four 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 ________ by ________ of the total original asset value.
A. decline; 5 percent
B. decline; 10 percent
C. decline; 15 percent
D. increase; 20 percent

Answer

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