Question

A bank's duration gap is (−2.64), and the current interest rate used to value all of the bank's assets and liabilities is 5.92%. What is the change in the bank's net worth (in \% of TA) if the interest rate changes to 6% ? Round to 0.01%, drop the % symbol. x

Answer 1

To determine the bank's net worth, we subtract its liabilities ($400 in deposits) from its assets ($620, which includes reserves, government bonds, and loans), resulting in a net worth of $220.

Step-by-step explanation:

To calculate the bank's net worth, we need to look at its assets and liabilities. A T-account balance sheet will help us visualize this. On the assets side, we have reserves worth $50 and government bonds worth $70, plus loans worth $500, giving us a total of $620 in assets. The liabilities side consists only of deposits worth $400. To find the net worth, we subtract the liabilities from the assets:

Total Assets - Liabilities = Net Worth
$620 (Assets) - $400 (Deposits) = $220 Net Worth

Hence, the bank's net worth is $220.