Calculate the leverage-adjusted duration gap

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Consider the following.

a. Calculate the leverage-adjusted duration gap of an FI that has assets of $2.8 million invested in 30-year, 14 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 10.12 years. It has liabilities of $1,080,000 financed through a two-year, 7.50 percent semiannual coupon note selling at par.

b. What is the impact on equity values if all interest rates fall 25 basis points-that is, ΔR/(1 + R/2) = -0.0025?

(For all requirements, do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

Reference no: EM132497816

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