9-100 If all interest rates fall by 1 percent,calculate the impact on the bank's market value of equity using the duration approximation.(That is,$\Delta$R/(1+R)= -1 percent)
A)The bank's market value of equity increases by $325,450.
B)The bank's market value of equity decreases by $325,450.
C)The bank's market value of equity increases by $336,500.
D)The bank's market value of equity decreases by $336,500.
E)There is no change in the bank's market value of equity.

Question

Quizplus · Accepted Answer

When interest rates fall, the market value of equity increases due to the inverse relationship between interest rates and bond prices. The duration approximation suggests a positive impact on equity value.

9-100 If All Interest Rates Fall by 1 Percent,calculate the Impact