What is the impact on economic capital of a 25 basis point decrease in interest rates if the FI is holding a year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000?

Question

Quizplus · Accepted Answer

A decrease in interest rates increases the present value of future cash flows from the bond, thus increasing its market value. The increase in the bond's market value is approximately $2,024 for a 25 basis point decrease in interest rates.

What Is the Impact on Economic Capital of a 25