What is the impact on the dealer's market value of equity per $100 of assets if the change in all interest rates is an increase of 0.5 percent? [i.e. ,$\Delta$R = 0.5 percent]

Question

Quizplus · Accepted Answer

Change in the market value of equity, leverage-adjusted duration gap 11efb86b_5c93_b4cf_9137_49b3cf5291e6_TB1314_00
∆E = -1.21 ء $60,000,000 x (0.005 ÷ 1.08) = -$336,111. The impact on the dealer's market value of equity per $100 of assets can be calculated using the duration formula:
% change in MV of equity = - duration x % change in interest rates
Since the interest rates have increased by 0.5%, we can calculate the duration of the dealer's assets and liabilities and use the formula to find the change in market value of equity. Without information about the duration of assets and liabilities, we cannot determine the exact amount, but we can say with certainty that an increase in interest rates will have a negative impact on the market value of equity. Therefore, choice C is the best answer, indicating a decrease in market value of equity per $100 of assets.

What Is the Impact on the Dealer's Market Value of Equity