Question

Consider the following.
a. Calculate the leverage-adjusted duration gap of an FI that has assets of $ 1 million invested in 30-year, 10 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 9.94 years. It has liabilities of $ 900,000 financed through a two-year, 7.25 percent semiannual coupon note selling at par.
b. What is the impact on equity values if all interest rates fall 20 basis points—that is, ∆R/(1 + R/2) = – 0.0020?



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  • CreatedJanuary 27, 2015
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