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.

Question

Quizplus · Accepted Answer

First, we need to calculate the duration gap:
Duration of assets - Duration of liabilities = 1.21 - 0.25 = 0.96
Next, we need to adjust for leverage by dividing the duration gap by equity:
0.96/50 = 0.0192
Finally, we can calculate the leverage-adjusted duration gap by multiplying by the financial asset value:
0.0192 * 800 = 15.36 or approximately 0.9756 years. Therefore, answer choice C is correct.

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