An FI Has a Leverage-Adjusted Duration Gap of 1 $\Delta$ R/(1+R) = 0

question 68

Multiple Choice

An FI has a leverage-adjusted duration gap of 1.21 years, $60 million in assets, 7% equity to assets ratio, and market rates are 8%.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% [i.e. $\Delta$ R/(1+R) = 0.5%]?

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

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Definitions:

Line-by-Line Method

A method of accounting where the revenues and expenses of subsidiaries are added line-by-line to those of the parent company for consolidated financial reporting.

Jointly Controlled Operations

Business activities that are controlled and managed by two or more parties under a joint agreement, sharing both the benefits and obligations.

Jointly Controlled Assets

Assets that are controlled and managed under a contractual arrangement by two or more parties, each having shared control over the economic benefits.

Contractual Agreement

An official document that outlines the terms and conditions agreed upon between two or more parties.