Question

The Raymond Burr National Bank has $1,000 in assets with an average duration of 5 years. This bank has $800 in liabilities with an average duration of 6.25 years. Market interest rates start at 6 percent and fall by 1 percent. If interest rates on both assets and liabilities decrease by 2 percent in the next 90 days, what should happen to this bank's net interest margin?

Please show your steps in solving this problem without using Excel.

Answer 1