A bond portfolio amounting to 12 CZK billion, with an average duration of 5, is financed by deposits with an average duration of 2. What happens if interest rates increase?

Question

Answer

The value of assets will decrease more than the value of liabilities, leading to a net loss

Answer

Given the information in the setup, we cannot say what will happen

Answer

The value of assets will increase less than the value of liabilities, leading to a net profit

Answer

The value of assets will increase less than the value of liabilities, leading to a net loss

Answer

The value of assets will decrease less than the value of liabilities, leading to a net profit

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A bond portfolio amounting to 12 CZK billion, with an average duration of 5, is ...

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