Suppose First National Bank holds $100 million in assets with an average duration of 4 years, and it holds $85 million in liabilities with an average duration of 2 years. Further suppose there is a 4-percentage-point increase in interest rates. Calculate the percentage decrease in First National Bank's net worth relative to the total original asset value. A 4-percentage-point increase in interest rates decreases First National Bank's net worth by % of the total original asset value. (Round your response to two decimal places.)

Suppose First National Bank holds $100 million in assets with an average duration of 4 years, and it holds $85 million in liabilities with an average duration of 2 years. Further suppose there is a 4-percentage-point increase in interest rates. Calculate the percentage decrease in First National Bank's net worth relative to the total original asset value. A 4-percentage-point increase in interest rates decreases First National Bank's net worth by % of the total original asset value. (Round your response to two decimal places.)

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter13: Money And The Banking System

Section: Chapter Questions

Problem 1CQ

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Suppose First National Bank holds $100 million in assets with an average duration of 4 years, and it holds $85 million in liabilities with an average duration of 2 years. Further suppose there is a 4-percentage-point increase in interest rates. Calculate the percentage decrease in First National Bank's net worth relative to the total original asset value. A 4-percentage-point increase in interest rates decreases First National Bank's net worth by % of the total original asset value. (Round your response to two decimal places.)
The balance sheet of Key Bank (KB) has the following items (all amounts are in SMM). On the Assets side, it reports: 1-year Consumer Loans=$140, 30-year Consumer Loans-$125, 6-month T-notes-$265, 3-year T-bonds=$180, and 30-year Floating-rate Mortgages (adjusted every year)=$120. On the Liabilities and Equity side, it reports: Passbook Savings $120, 3-month CDs=$280, 6-month CDs=$140, 1-year Time Deposits=$110, 5-year Time Deposits=$80, and Equity Capital $100. What is KB's cumulative 6-month repricing gap? A. $135 million B. $55 million C. -$275 million D. -$155 million
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