IPS quiz bank decrease, liability, unexpected, net, will

Dapper425

bank , asset duration 3 ,liability duration 5 , market value of asset 100 billion , market value of liability 90billion . what is its overall interest rate exposure its market value of net worth will increase or decrease if unexpected interest rate rise

ohai

LADG = 3 - 90/100 * 5 = -1.5

so if rates increase - exposure will be -1.5% for each 1% change
rates fall - it will be +1.5% for each 1% change

CP

nannan66

3 - (90/100 * 5) = -1.5

Effective rate is -1.5% to surplus or as a percentage 15% loss in equity.

canadiananalyst

in my understanding net worth will increase if interest rates increase since duratiion liab > duration assets..