An FI Has a Leverage-Adjusted Duration Gap of 1

question 57

Multiple Choice

An FI has a leverage-adjusted duration gap of 1.21 years, $60 million in assets, 7 per cent equity to assets ratio, and market rates are 8 per cent. What is the impact on the dealer's market value of equity per $100 of assets if the relative change in all interest rates is an increase of 0.5 per cent [i.e., R/(1+R) = 0.5 per cent]?

• A) +$336 111
• B) -$0.605
• C) -$336 111
• D) +$0.605

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Definitions:

Binomial Distribution

A probability distribution that summarizes the likelihood that a variable will take one of two independent values under a given number of observations.

Significance Level

A statistical term that quantifies the probability of rejecting the null hypothesis when it is actually true, typically expressed as a percentage or decimal.

Expected Frequency

The predicted count of occurrences for a particular category or event in a statistical distribution, based on a theoretical probability.

Sample Size

The number of observations or data points that are selected from a larger population for purposes of statistical analysis; essential to the reliability of study results.