A Liability Sensitive Bank Decides to Reduce Risk by Marketing

Multiple Choice

A liability sensitive bank decides to reduce risk by marketing 2-year CDs paying 5% instead of NOW accounts that pay 4%. The bank will benefit if:

A) the 2-year rate in one year is less than 5%.
B) the 1-year rate in one year is less than 6%.
C) the 1-year rate in one year is greater than 6%.
D) the 2-year rate in one year is greater than 6%.
E) Not enough information is given to determine the correct answer.