Query: In times of (highly volatile / relatively stable) interest rates, banks should target a DGAP that is smaller in absolute value.

On your own: Another example Change in interest rates: 200 basis point decline. Asset duration 3 years. Liabilities' duration 1.5 years. Market values total assets $1000 total liabilities-$900, total equity $100 rate-10% rate-8% a) Calculate the change in the MV of assets. b) Calculate the change in the MV of the liabilities c) Calculate the change in the MV of the equity two ways: first, use data from a and b above, and second, use the DGAP formula