Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

-What is market value of the two-year CD if all market interest rates increase by 2 percent?
A)$40.381 million.
B)$39.626 million.
C)$40.000 million.
D)$38.573 million.

Question

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

-What is market value of the two-year CD if all market interest rates increase by 2 percent?
A)$40.381 million. 
B)$39.626 million. 
C)$40.000 million. 
D)$38.573 million.

Quizplus · Accepted Answer

When market interest rates increase, the present value of future cash flows from the CD decreases, leading to a lower market value. Market value of 1-year CD if rates increase 2 percent. 11efb860_9055_38c3_9137_078e4478421d_TB1314_00

Hadbucks National Bank Current Balance Sheet Appears Below