First Duration Bank has the following assets and liabilities on its balance sheet:
-What is the FI's leverage-adjusted duration gap?
A)0.91 years.
B)0.83 years.
C)0.73 years.
D)0.50 years.

Question

First Duration Bank has the following assets and liabilities on its balance sheet: 
-What is the FI's leverage-adjusted duration gap?
A)0.91 years. 
B)0.83 years. 
C)0.73 years. 
D)0.50 years.

Quizplus · Accepted Answer

Leverage-adjusted duration.
 
 Duration of the CDs first
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1-year T-bills will also have a duration of 1
 Duration of the assets is a weighted average
 DA = (400/500) x 1.9114 + (100/500) x 1.000 = 1.52912 + 0.200 = 1.72912
 Finally, leverage-adjusted duration
11efb86c_b0ff_8896_9137_8d6901992bbc_TB1314_00

First Duration Bank Has the Following Assets and Liabilities on Its