First Duration, a Securities Dealer, Has a Leverage-Adjusted Duration Gap

question 28

Multiple Choice

First Duration, a securities dealer, has a leverage-adjusted duration gap of 1.21 years, $60 million in assets, 7 percent equity to assets ratio, and market rates are 8 percent. What conclusions can you draw from the duration gap in your answer to the previous question?

• A)The market value of the dealer's equity decreases slightly if interest rates fall.
• B)The market value of the dealer's equity becomes negative if interest rates rise.
• C)The market value of the dealer's equity decreases slightly if interest rates rise.
• D)The market value of the dealer's equity becomes negative if interest rates fall.
• E)The dealer has no interest rate risk exposure.

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