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A bank has the following balance sheet: - Total Assets: 100 million - Rate-sensitive assets: 30 million - Total liabilities: 90 million - Rate-sensitive liabilities:
A bank has the following balance sheet:
- Total Assets: 100 million
- Rate-sensitive assets: 30 million
- Total liabilities: 90 million
- Rate-sensitive liabilities: 45 million
- Average duration of assets: 3 years
- Average duration of liabilities: 1.5 years
- Current profits: 5 million
Assume that the interest rate rises from 2 percent to 4 percent
a) What is the relative change in the banks profits?
b) What is the relative change in the banks net worth?
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