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

canadiananalyst

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

nannan66

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

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

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