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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Solution to Stage Fifteen

1.

Economic value = value of assets – value of debt = 100 – 95 = 5

2.Change in economic value of equity:

In this exercise, an increase in interest rate of 2% would completely destroy the economic value of equity of the bank, meaning that the value of assets would no longer cover the value of deposits.

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