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Suppose the financial institution you work for has $500,000 in liabilities and $1,500,000 in assets. You find out that the duration of assets is 6.4 years and the duration of liabilities is 4.5 years. The interest rate is currently 10%.

a. If interest rates suddenly fluctuated and the value of your firm’s equity were to decrease by $120,000, what is the new interest rate in the market?

b. If you are a bank manager, what must you do to be immunized against interest rate risk?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92765828

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