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Question
First Duration, a securities dealer, has a leverage-adjusted duration gap of 1.21 years, $60 million in assets, 7 percent equity to assets ratio, and market rates are 8 percent.
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.
Answer
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