Calculate the leverage-adjusted duration gap of an fi

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Question: Consider the following.

a. Calculate the leverage-adjusted duration gap of an FI that has assets of $1 million invested in 30-year, 10 percent semiannual coupon Treasury bonds selling at par and whose duration has been estimated at 9.94 years. It has liabilities of $900,000 financed through a two-year, 7.25 percent semiannual coupon note selling at par.

b. What is the impact on equity values if all interest rates fall 20 basis points-that is, ?R /(1 +R /2) = -0.0020?

Reference no: EM131633657

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