Assuming that the interest rates are currently 10%, what is expected to happen t

Question

Assuming that the interest rates are currently 10%, what is expected to happen to Guyton's net worth if rates increase by 100 basis points (give me the expected change expressed in $) Explain.

Guyton's balance sheet is given below (in millions) Assets $200 Liabilities S150 Asset Duration (DA): 7.0 Equity S 50 Total $200 Liabs Duration (DL): 4.5 Total $200 Assuming that interest rates are currently 10%, what is expected to happen to Guyton's net worth if rates increase by 100 basis points (give me the expected change expressed in S)?

Explanation / Answer

100 basis points = 1%

Change % = - duration*(change in rate / (1+previous rate))

Change in assets = - 7 * (1%/(1+10%)) = -6.36%

Assets decreases by = 200*6.36% = 12.73

Change in liabilities= - 4.5 * (1%/(1+10%)) = -4.09%

Assets decreases by = 150*4.09% = 6.12

Change in net worth = - 12.73 - (-6.12) = -6.59 million $

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---