If a bank has rate sensitive assets of $50 million and rate sensitive liabilities of $40...
If a bank has rate sensitive assets of $50 million and rate sensitive liabilities of $40 million, than an interest rate increase of 5 percentage points would cause net worth to(GAP Analysis)
A. Increase $500 thousand
B. Decrease by $500 thousand
C Increase by $10 million
D. All the previous answers are wrong
Please Explain
Homework Answers
The 5% Increase in interest rate will only affect the rate-sensitive assets and liabilities.
Increase in Interest income from rate-sensitive assets = $40 million x 5% = $2 million
Increase in Interest payment for rate-sensitive liabilities = $50 million x 5% = $2.5 million
Increase in profit or net worth ($ million) = Increase in Interest income - Increase in Interest payment
= 2.5 - 2
= 0.5 million
= 500,000 = 500 thousand
Ans - A. Increase $500 thousand
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