A savings and loan has extremely long-term assets that are currently matched against extremely short-term liabilities. For this S&L:
A) falling interest rates will decrease the value of its equity.
B) falling interest rates will increase the value of its equity.
C) rising interest rates will increase the value of its equity.
D) rising interest rates will decrease the value of its equity.
E) Both falling interest rates will increase the value of its equity; and rising interest rates will decrease the value of its equity.

Question

Quizplus · Accepted Answer

When interest rates fall, the value of long-term assets increases more than the value of short-term liabilities, increasing equity. Conversely, when interest rates rise, the value of long-term assets decreases more than the value of short-term liabilities, decreasing equity.

A Savings and Loan Has Extremely Long-Term Assets That Are