b) Suppose that the Duration of Assets (DA) is 5 years and the duration ofliabilities (DL) is 3 years. The current market value of assets is 100 millionpounds and the market value of liabilities is 80 million pounds. What would bethe effect (loss or gain) on the market value of equity (dE) if interest ratesincrease from 5% p.a. to 7% p.a. ?

Duration of security tells us that how much will be change in value of security with change in…

Answered: narket value of is 80 million pon

Business

Accounting

narket value of is 80 million pon

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

b) Suppose that the Duration of Assets (DA) is 5 years and the duration of
liabilities (DL) is 3 years. The current market value of assets is 100 million
pounds and the market value of liabilities is 80 million pounds. What would be
the effect (loss or gain) on the market value of equity (dE) if interest rates
increase from 5% p.a. to 7% p.a. ?

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