If all interest rates decline 90 basis points ($\Delta$R/(1 + R)= -90 basis points),what is the change in the market value of equity?
A)-$4.4300 million
B)+$3.9255 million
C)+$4.3875 million
D)+$2.5506 million

Question

Quizplus · Accepted Answer

Change in the market value of equity, leverage-adjusted duration gap 11efb877_d2c9_6ea9_9137_27594c58d072_TB1314_00 To calculate the change in the market value of equity, we need to use the market value equation:

Market Value = (Cash Flows / (Discount Rate – Growth Rate))

When the interest rates decline, the discount rate decreases, which increases the market value of equity. We can calculate the change in the market value of equity as follows:

Change in Market Value = New Market Value - Old Market Value

We don't have the cash flows or growth rate, so we can't calculate the exact market value. However, we do know that the interest rates declined by 90 basis points (0.90%). According to the formula, if the discount rate declines by 0.90%, the market value of equity should increase by approximately 4.39%. Therefore, the correct answer is C, +$4.3875 million.

If All Interest Rates Decline 90 Basis Points Δ\DeltaΔ R/(1 + R)= -90 Basis Points),what Is the Change in R/(1

If All Interest Rates Decline 90 Basis Points $\Delta$ R/(1 + R)= -90 Basis Points),what Is the Change in R/(1