Question

Assume that the market value assets and liabilities of a bank are $120 million and $220 million, respectively, and their durations are 2 and 3. Find the new market value of assets that eliminates the interest-risk of this bank.

Select one:

a. $220 million

b. $340 million

c. $240 million

d. $330 million

Answer 1

The question requires using duration matching to find the new market value of assets to eliminate a bank's interest rate risk. However, the necessary formulas or methodologies are not provided in the provided information to give an accurate answer.

Step-by-step explanation:

The student's question involves calculating the new market value of assets to eliminate interest rate risk for a bank, using the concept of duration matching. To achieve this, the bank would need to adjust its asset duration to match its liabilities duration. Duration is a measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates. The calculation to eliminate interest risk needs to factor in the duration of the bank's liabilities as well as the current market value of its assets and liabilities.

Unfortunately, the information provided does not include the necessary formulas or methodologies to accurately answer the question.