A bank has borrowed 10 million from investors at 10 for 10 y

A bank has borrowed $10 million from investors at 10% for 10 years. After two years interest rates begin to increase. This would depress the value of the bank’s liabilities which would boost the value of the bank’s equity.

true or false

Solution

Question:- A bank has borrowed $10 million from investors at 10% for 10 years. After two years interest rates begin to increase. This would depress the value of the bank’s liabilities which would boost the value of the bank’s equity.

Answer:- False

Reason:- With the increasing interest rates, the liabilitiy of the bank will increase