Assume that the Friendly Finance Company initially has the balance sheet shown on page 607 and that interest rates are initially at 8%.

Given the estimates of duration in Table 23.2, what will happen to the Friendly Finance Company's net worth if interest rates rise by 3 percentage points? Will the company stay in business? Why or why not?

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Cash and deposits Securities Assets Less than 1 year 1 to 2 years Greater than 2 years Consumer loans Less than 1 year 1 to 2 years Greater than 2 years Physical capital Total Friendly Finance Company $3 million $5 million $1 million $1 million $50 million $20 million $15 million $5 million $100 million Liabilities Commercial paper Bank loans Less than 1 year 1 to 2 years Greater than 2 years Long-term bonds and other long-term debt Capital Total $40 million $3 million $2 million $5 million $40 million $10 million $100 million