Question

Stillwater Bank reports an average asset duration of 3.25 years and an average liability duration of...

Stillwater Bank reports an average asset duration of 3.25 years and an average liability duration of 1.75 years. Liabilities are $485 million, while assets total $512 million. Suppose that interest rates are 6% but rise to 7.5%. What will happen to Stillwater's net worth if interest rates rise?

+$720 million

+$208 million

- $7.56 million

-$11.5 million

Homework Answers

Answer #1

Given,

Asset duration = 3.25 years

Liability duration = 1.75 years

Assets = $512 million

Liabilities = $485 million

Interest rate rises from 6%(0.06) to 7.5%(0.075)

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