An FI has financial assets of $800 and equity of $50. If the duration of assets is 1.21 years and the duration of all liabilities is 0.25 years, what is the leverage-adjusted duration gap?
A)0.9000 years.
B)0.9600 years.
C)0.9756 years.
D)0.8844 years.
E)Cannot be determined.

Question

Quizplus · Accepted Answer

The leverage-adjusted duration gap is calculated using the formula: Duration Gap = DA - (L/A) * DL, where DA is the duration of assets, DL is the duration of liabilities, L is the liabilities, and A is the assets. Here, L = A - E = 800 - 50 = 750. So, Duration Gap = 1.21 - (750/800) * 0.25 = 0.9756 years.

An FI Has Financial Assets of $800 and Equity of $50