Consider an asset with a current market value of $250 000 and a duration of 3.3 years.Assume the asset is partially funded through zero-coupon bonds which currently sells for $225 000 and has a maturity of 4 years.The current discount rate is 15%.Calculate the duration gap for this scenario:
A)-0.3 years
B)0.3 years
C)-0.7 years
D)0.7 years

Question

Quizplus · Accepted Answer

The duration gap is calculated as the duration of the asset minus the duration of the liability, weighted by the market value of the liability relative to the asset. The asset's duration is 3.3 years, and the liability's duration is 4 years. The liability's market value is $225,000, and the asset's market value is $250,000. The duration gap is 3.3 - (4 * 225,000 / 250,000) = 3.3 - 3.6 = -0.3 years.

Consider an Asset with a Current Market Value of $250