Question: Given the estimates of duration in Table, what will happen to the Friendly Finance Companys net worth if interest rates rise by 3 percentage points?

Given the estimates of duration in Table, what will happen to the Friendly Finance Company€™s net worth if interest rates rise by 3 percentage points? Will the company stay in business? Why or whynot?

Duration of the Friendly Finance Company's Assets and Liabilities Amount Duration Weighted S millions) years Duration years Cash and deposits 0.0 0.00 Less than 1 year 1 to 2 years Greater than 2 years 0.5 0.03 0.02 0.09 9.0 Consumer loans Less than T year 1 to 2 years Greater than 2 years 0.5 50 20 15 0.25 0.30 0.45 0.00 1.14 3.0 0.0 Physical capital Averoge duration Commercial poper Bank loans 40 0.2 0.09 Less than 1 year 1 to 2 years Greater than 2 years 0.3 0.01 0.04 0.19 2.44 2.77 2 3.5 5.5 Long-term bonds and other long-term debt 40 Averoge duration

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