An S&L Owns Mortgages Hat Have a Current Market Value

question 15

Multiple Choice

An S&L owns mortgages hat have a current market value of $325 million.The duration of this
Portfolio of mortgages is 15.9 years.The S&L finances its mortgages by issuing CDs and the current value of these liabilities is $275 million.The duration of these liabilities is 4.6 years.What is the initial duration of the equity for the S&L?

• A)103.25 years
• B)78.05 years
• C)25.30 years
• D)53.00 years

---

Definitions:

Par Value

The face value of a bond or stock, representing the amount to be returned to the holder at maturity, often unrelated to its market value.

Semiannual Interest Payments

Interest payments made twice a year on investments such as bonds.

Annual Contract Rate

The interest rate agreed upon in a contract for a year-long period.

Carrying Value

Also known as book value, it is the value of an asset or liability according to a company's financial statements.