A bank has assets of $1 million that mature in 5 years and liabilities of $1 million that mature in 10 years where interest rates (fixed rate) are 5.5% on assets and 5% on liabilities. Suppose interest rates decrease in 5 years when the assets mature. Which of the following is most accurate (assuming a 10 year time horizon)?

• A. The bank benefits because it is cheaper to borrow now and assets remain at the same rate
• B. The bank suffers because it must reinvest assets at a lower rate while liabilities remain at the same rate
• C. There is no impact because interest rates move for both assets and liabilities