For a bank that has a negative duration gap, a decrease in interest rates will cause a(n) _______ in the economic value of assets, a(n) _______ in the economic value of liabilities, and a(n) _______ in the economic value of equity.
A)increase, decrease, increase
B)increase, increase, decrease
C)increase, increase, increase
D)decrease, decrease, increase
E)decrease, increase, decrease

Question

Quizplus · Accepted Answer

A decrease in interest rates will cause an increase in the economic value of assets (as they become more valuable relative to liabilities), a decrease in the economic value of liabilities (as they become less valuable relative to assets), and an increase in the economic value of equity (as the difference between assets and liabilities increases).

For a Bank That Has a Negative Duration Gap, a Decrease