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

question 88

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 is the impact on the dealer's market value of equity per $100 of assets if the change in all interest rates is an increase of 0.5 percent [i.e., ΔR = 0.5 percent]

• A)+$336,111.
• B)-$0.605.
• C)-$336,111.
• D)+$0.605.
• E)-$363,000.

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Definitions:

Revenue Management

A strategy to predict consumer behavior at the market level and optimize product availability and price to maximize revenue growth.

Seasonal Peaks

Times of the year when demand for a product or service is significantly higher than usual, often due to factors like holidays or weather.

Wasted Capacity

The portion of production capability or resources that goes unused or is not effectively utilized.

Margin Reduction

The decrease in the difference between the cost to produce a good or service and its selling price, often aiming to increase market competitiveness.