A Bank Has an Average Asset Duration of 2

A bank has an average asset duration of 2.25 years, the average duration of the liabilities is 1.25 years, and the bank has total assets of $2 billion and $200 million in equity. The bank has an ROE of 9.00%. If all interest rates decrease 50 basis points, the predicted change in the bank's market value of equity is ___________.

A) -2.85%
B) -3.55%
C) 3.55%
D) 2.85%
E) 5.16% DGap = DurA - kDurL = 2.25 - (0.90 x 1.25) = 1.125; %∆E = - 1.125 x (-0.005/1.09) x $2 bill/$200 million = 5.16%