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Find leverage adjusted gap duration. Give management interpretation of duration gap.

Suppose interest rates on both assets and liabilities rose from 5% to 9% then, what will be change in institutions net worth?

Suppose interest rates on both assets and liabilities fall from 15% to 7% then, what will be change in intstutions net worth?

Average Duration of Average Duration of Interest Rate Composition of Interest Rate Composition Market Attached to Each Category Liabilities and Market Attached to Each Liability of Assets uses of funds) Assets of Assets (in years) (sources of funds) Liabilities Category (in years) U.S. Treasury securities Municipal bonds Commercial loans 100 Consumer loans Real estate loans 4 1300 Value of Each Category of Assets Equity Capital Value of Each Liability Category $ 90 20 10.00% 6.00 12.00 15.00 7490 Negotiable CDs $100 6.00% 7.20 9.00 1.943 2.750 3.918 1500 Other time deposits125 0.600 Su 1.200 Total liabilities 250 Stockholders bordinated notes 50 275 50 equity capital Average in Years Average in Years Total $300 3047 Total $300 2.669