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Question
Allright Insurance has total assets of $140 million consisting of $50 million in 2-year, 6 percent Treasury notes and $90 million in 10-year, 7.2 percent fixed-rate Baa bonds. These assets are funded by $100 million 5-year, 5 percent fixed rate GICs and equity.
The duration of the T-notes, Baa bonds, and GICs is 1.93 years, 6.9 years, and 4.5 years respectively. What is the leverage-adjusted duration gap for Allright?
A. 1.99 years.
B. 5.13 years.
C. 0.63 years.
D. 1.91 years.
E. 1.0 year.
Answer
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