Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years,

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: The correct answer is decline; 5 percent.

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