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Bank of America enters into a 3-year plain vanilla SWAP contract with AllState Insurance. The notional value of the contract is $100 million. Bank of

Bank of America enters into a 3-year plain vanilla SWAP contract with AllState Insurance. The notional value of the contract is $100 million. Bank of America agrees to pay a fixed rate of interest of 3%, while AllState will pay LIBOR+1%. Which of the following statements is correct?

A. Bank of America is likely to have a positive duration gap.

B. AllState must be hegding its exposure to an increase in interest rates.

C. By entering the SWAP, Bank of America is hedging risk of a decline in interest rates.

D. None of the above.

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