Given the cash inflow and outflow figures in Problem 11 for Richman Bank, N.A., suppose that interest rates began at a level of 5 percent and then suddenly rise to 5.75 percent. If the bank has total assets of $5 billion and total liabilities of $4.5 billion, by how much would the value of Richman’s net worth change as a result of this movement in interest rates? Suppose, on the other hand, that interest rates decline from 5 percent to 4.5 percent. What happens to the value of Richman’s net worth in this case and by how much in dollars does it change? What is the size of its duration gap?
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