Suppose the bank manager calculates the following:
- the duration of Bank's asset portfolio is 5 yrs
- the duration of Bank's liability portfolio is 3 yrs
- interest rates are currently 10% expected to rise by 100 basis points.
The bank's issued Balance is assumed to be as follows:
Assets: 100 million
Liability: 90 Million
Equity: 10 million
1. Calculate the potential change to equity held networth if the forecasted rate is rising.
2. Propose the market value balance sheet after rising the rate.