A savings and loan has extremely long-term assets that are currently matched against extremely short-term liabilities.For this S&L:
A)Falling interest rates will decrease the value of its equity.
B)Falling interest rates will increase the value of its equity.
C)Rising interest rates will increase the value of its equity.
D)Rising interest rates will decrease the value of its equity.
E)Both B and D.

Question

Quizplus · Accepted Answer

Falling interest rates will increase the value of long-term assets relative to short-term liabilities, which will increase the value of equity. Conversely, rising interest rates will decrease the value of long-term assets relative to short-term liabilities and reduce the value of equity. Therefore, both B and D are correct.

A Savings and Loan Has Extremely Long-Term Assets That Are