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AMR Finance, with assets of $50,000, has a leverage-adjusted duration gap (DGAP) of -2.50 years. Management wants to hedge the exposure to interest rate risk.

AMR Finance, with assets of $50,000, has a leverage-adjusted duration gap (DGAP) of -2.50 years. Management wants to hedge the exposure to interest rate risk. The consensus forecast is that interest rates will decline by 50 basis points (0.50%) over the next year. What would be the impact on AMR Finances net worth (E) if interest rates do decrease by 50 basis points? Current interest rates are 3%.

A. - 5,000

B. + $5,000

C. - $606.80

D. + $606.80

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