What will be the impact, if any, on the market value of the bank's equity if all interest rates increase by 75 basis points?
A)The market value of equity will decrease by $15,750.
B)The market value of equity will increase by $15,750.
C)The market value of equity will decrease by $426,825.
D)The market value of equity will increase by $426,825.
E)There will be no impact on the market value of equity.
[Refer to: 9-128]

Question

Quizplus · Accepted Answer

An increase in interest rates will decrease the market value of equity of the bank. Using the duration gap model, we can calculate the impact as:
-0.75% x ($50,000,000 x 0.70) = -$262,500
Therefore, the market value of equity will decrease by $262,500 x 1.625 = $426,825. Choice C is the correct answer.

What Will Be the Impact, If Any, on the Market