Assets consisting mostly of investments in corporate bonds

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Reference no: EM131852519

Bank of America (BOA), with assets consisting mostly of investments in corporate bonds, estimated the duration of its assets (DURAS) to be 9.5 years while its liabilities, consisting mainly of bank issued bonds and certificates of deposits, have an estimated duration (DURLIAB) of 14.3 years. BOA is anticipating a period of rising interest rates over the next several years. What should happen to BOA’s market value of net worth (increase, decrease, or no change) if interest rates do start to rise? Explain why. Note: The market value of net worth is equal to the market value of assets minus the market value of liabilities.

Reference no: EM131852519

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