9-75 What conclusions can you draw from the duration gap in your answer to the previous question?
A)The market value of the dealer's equity decreases slightly if interest rates fall.
B)The market value of the dealer's equity becomes negative if interest rates rise.
C)The market value of the dealer's equity decreases slightly if interest rates rise.
D)The market value of the dealer's equity becomes negative if interest rates fall.
E)The dealer has no interest rate risk exposure.

Question

Quizplus · Accepted Answer

The duration gap indicates the sensitivity of the dealer's equity to changes in interest rates. A positive duration gap suggests that the market value of equity will decrease if interest rates rise.

9-75 What Conclusions Can You Draw from the Duration Gap