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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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