Question $19$

In selling loans, Fls act as an asset

and in creating CMOs, Fls act as an asset

transformer, broker

transformer, transformer

broker; transformer

broker; brokerQuestion $20$

Consider the following.

$($For all requirements, do not round intermediate calculations. Round your answers to $2$

decimal places. $($e$.$g$.,32\mathrm{.}16))$

a$.$ Calculate the leverage$-$adjusted duration gap of an $FI$ that has assets of $$1\mathrm{.}2$ million

invested in $25-$year, $10$ percent semiannual coupon Treasury bonds selling at par and whose

duration has been estimated at $9\mathrm{.}96$ years. It has liabilities of $$920,000$ financed through a

two$-$year, $7\mathrm{.}00$ percent semiannual coupon note selling at par.

b$.$ What is the impact on equity values if all interest rates fall $20$ basis points$-$that is$,$

$+\frac{R}{2}?$