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Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The

Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The ratio Debt/Assets=0.85 for this bank. Using a duration analysis, you estimated the effective duration gap for the bank implied by these numbers. You assumed that a one percent change in the rate is approximately the same as a one percentage point change in the rate. This implied duration gap is:

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