Consider an Asset with a Current Market Value of $250

question 40

Multiple Choice

Consider an asset with a current market value of $250 000 and a duration of 3.3 years. Assume the asset is partially funded through zero-coupon bonds which currently sells for $225 000 and has a maturity of 4 years. The current discount rate is 15 per cent. Which of the following statements is true?

• A) The FI is benefiting from increasing interest rates as it has a negative duration gap of 0.3 years.
• B) The FI is exposed to increasing interest rates as it has a negative duration gap of 0.3 years.
• C) The FI is exposed to increasing interest rates as it has a positive duration gap of 0.3 years.
• D) The FI is exposed to decreasing interest rates as it has a positive duration gap of 0.3 years.

---

Definitions:

Strong Support

Firm backing or endorsement from someone or something, often indicating unwavering faith or belief in a cause, individual, or idea.

Mild Support

Minimal yet positive encouragement or assistance that helps to promote or sustain a particular action or condition.

Cognitive Therapy

A form of psychotherapy that addresses maladaptive thinking patterns to effect change in behavior and emotion.

Suffering From Depression

Experiencing a mental health disorder characterized by persistently depressed mood or loss of interest in activities, causing significant impairment in daily life.