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The following information relates a commercial bank as at December 31, 2020 Rate sensitive Asset $70m Rate sensitive Liabilities $30m Fixed rate assets $30m Fixed

The following information relates a commercial bank as at December 31, 2020

Rate sensitive Asset $70m

Rate sensitive Liabilities $30m

Fixed rate assets $30m

Fixed rate liabilities $30m

Assume the duration of the assets is 5 years and that of its liabilities is 2 years. Assume the interest rates are initially 10%.

If interest rates decreased from15% to 5% calculate the change in the market value of the net worth as a percentage of total assets. Explain using gap analysis.

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