Answer: 12.9.

**Explanation:** The effective duration of the liabilities is calculated using the formula: \[ \text{Effective Duration} = \frac{(PV_{-} - PV_{+})}{(2 \times \Delta \text{Curve} \times PV_{0})} \] Where: - \(PV_{-}\) is the present value of liabilities when the interest rate decreases by 0.5% (198 million). - \(PV_{+}\) is the present value of liabilities when the interest rate increases by 0.5% (174 million). - \(PV_{0}\) is the present value of liabilities at the current interest rate (186 million). - \(\Delta \text{Curve}\) is the change in the benchmark yield curve (0.5%). Plugging in the values: \[ \text{Effective Duration} = \frac{(198 - 174)}{(2 \times 0.005 \times 186)} = \frac{24}{1.86} \approx 12.9 \] **Why Option B is Correct:** The calculation correctly uses a 0.5% change in the benchmark yield curve and the appropriate formula for effective duration. The result is approximately 12.9. **Why Other Options Are Incorrect:** - **Option A (6.5):** Incorrectly uses a 1% change in the benchmark yield curve instead of 0.5%. - **Option C (25.8):** Uses an incorrect formula for effective duration, omitting the factor of 2 in the denominator.

Author: LeetQuiz Editorial Team