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Suppose your firm has $500,000 in liabilities and $1,500,000 in assets. You find out that the...

Suppose your firm 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%. 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?

1.8%

8.2%

11.2%

11.8%

None of the above.
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