Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

-What is market value of the ten-year loan if all market interest rates increase by 2 percent?
A)$40.000 million.
B)$44.916 million.
C)$37.830 million.
D)$42.356 million.
E)$35.827 million.

Question

Hadbucks National Bank current balance sheet appears below. All assets and liabilities are currently priced at par and pay interest annually.

-What is market value of the ten-year loan if all market interest rates increase by 2 percent?
A)$40.000 million. 
B)$44.916 million. 
C)$37.830 million. 
D)$42.356 million. 
E)$35.827 million.

Quizplus · Accepted Answer

When market interest rates increase, the present value of future cash flows from a loan decreases, leading to a lower market value. Among the options, $35.827 million is the lowest, reflecting the impact of a 2% increase in interest rates. Market value of 1-year bond if rates increase 2 percent. 11efb860_6613_f601_9137_bb60fb7245cd_TB1314_00

Hadbucks National Bank Current Balance Sheet Appears Below