For every $100 in assets, a bank has $40 in interest-rate sensitive assets, and the other $60 in non-interest-rate sensitive assets.The same bank has $50 for every $100 in liabilities in interest-rate sensitive liabilities, the other $50 are in liabilities that are not interest-rate sensitive.If the interest rate on assets increases from 5 to 6 percent, and the interest rate on liabilities increases from 3 to 4, percent the impact on the bank's profits per $100 of assets will be:

Question

Quizplus · Accepted Answer

The bank's interest-rate sensitive assets increase by 1% on $40, resulting in an increase of $0.40. The interest-rate sensitive liabilities also increase by 1% on $50, resulting in an increase of $0.50. The net impact is a decrease of $0.10 in profits per $100 of assets.

For Every $100 in Assets, a Bank Has $40 in Interest-Rate