Accounting Consider a bank with 10M in shareholder equity. It has assets and liabilities according to the following table: Assets Rate Sensitive Assets 100M Fixed Rate Assets 75M Liabilities Rate Sensitive Liabilities 75M Fixed Rate Liabilities 100M Suppose the average duration of assets is 3 years, and the average duration of liabilities is 4 years. a. If the interest rate changes by 2%, what is the bank's new shareholder equity? (hint: use duration analysis to find the change in the bank's net worth) . Does the bank remain solvent? c. What is the change in the bank's profits according to gap analysis?

Accounting Consider a bank with 10M in shareholder equity. It has assets and liabilities according to the following table: Assets Rate Sensitive Assets 100M Fixed Rate Assets 75M Liabilities Rate Sensitive Liabilities 75M Fixed Rate Liabilities 100M Suppose the average duration of assets is 3 years, and the average duration of liabilities is 4 years. a. If the interest rate changes by 2%, what is the bank's new shareholder equity? (hint: use duration analysis to find the change in the bank's net worth) . Does the bank remain solvent? c. What is the change in the bank's profits according to gap analysis?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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