The average duration of the loans is 10 years. The average duration of the deposits is 3 years. What is the leveraged-adjusted duration gap of the bank's portfolio?

Question

The average duration of the loans is 10 years. The average duration of the deposits is 3 years.  What is the leveraged-adjusted duration gap of the bank's portfolio?

Quizplus · Accepted Answer

The leveraged-adjusted duration gap formula is as follows:

Leveraged-adjusted duration gap = duration of assets - (assets / liabilities) x duration of liabilities

Using the formula and the given information, we can calculate the leveraged-adjusted duration gap:

Duration of assets = 10 years
Duration of liabilities = 3 years
Assets / Liabilities = 1 (assuming all deposits are used to fund loans)

Leveraged-adjusted duration gap = 10 - (1 x 10/3) = 7.18 years

Therefore, the best choice is D) 7.18 years, as it is the calculated leveraged-adjusted duration gap of the bank's portfolio.

The Average Duration of the Loans Is 10 Years