-Calculate the Leverage-Adjusted Duration Gap to Four Decimal Places and |

question 69

Multiple Choice

$$\begin{array} { | l | r | c | c | } \hline \text { Assets } & \text { Amount } & \text { Rate } & \text { Duration } \\\hline \text { Cash } & \$ 75 \text { million } & & \\\hline \text { Loans } & \$ 750 \text { million } & 12 \text { percent } & 1.75 \text { years } \\\hline \text { Treasuries } & \$ 175 \text { million } & 9 \text { percent } & 7.00 \text { years } \\\hline \text { Liabilities and Equity } & & & \\\hline \text { Time Deposits } & \$ 350 \text { million } & 7 \text { percent } & 1.75 \text { years } \\\hline \text { CDs } & \$ 575 \text { million } & 8 \text { percent } & 2.50 \text { years } \\\hline \text { Equity } & \$ 75 \text { million } & & \\\hline\end{array}$$
-Calculate the leverage-adjusted duration gap to four decimal places and state the FI's interest rate risk exposure of this institution.

• A)+1.0308 years; exposed to interest rate increases.
• B)-0.3232 years; exposed to interest rate increases.
• C)+0.8666 years; exposed to interest rate increases.
• D)+0.4875 years; exposed to interest rate increases.
• E)-1.3232 years; exposed to interest rate decreases.

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Definitions:

Asset Improvements

Expenditures made to increase the utility or extend the useful life of an asset.

Extraordinary Repairs

Repairs that are infrequent, large in scope, and extend the useful life of an asset beyond its original estimate.

Paved Parking

An area specifically designated and constructed for parking vehicles that is covered with a hard, smooth surface such as asphalt or concrete.

Land Improvements

Enhancements made to land to increase its value or utility, such as landscaping, paving, and installation of utilities, which are typically depreciable over their estimated useful life.