Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The ratio Debt/Assets=0.85 for this bank. Using a duration analysis, you estimated the effective duration gap for the bank implied by these numbers. You assumed that a one percent change in the rate is approximately the same as a one percentage point change in the rate. This implied duration gap is: Group of answer choices 0.59 years 3.32 years 0.17 years 2.73 years 4.59 years
Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The ratio Debt/Assets=0.85 for this bank. Using a duration analysis, you estimated the effective duration gap for the bank implied by these numbers. You assumed that a one percent change in the rate is approximately the same as a one percentage point change in the rate. This implied duration gap is: Group of answer choices 0.59 years 3.32 years 0.17 years 2.73 years 4.59 years
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The ratio Debt/Assets=0.85 for this bank. Using a duration analysis, you estimated the effective duration gap for the bank implied by these numbers. You assumed that a one percent change in the rate is approximately the same as a one percentage point change in the rate. This implied duration gap is:
Group of answer choices
0.59 years
3.32 years
0.17 years
2.73 years
4.59 years
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