Financial Risk Manager Part 2

Get started today

Ultimate access to all questions.

Explanation:

Leverage Adjusted Duration Gap
= Dollar-weighted duration of Assets Portfolio – Dollar-weighted Duration of Liability Portfolio
× $\frac{\text{Total Liabilities}}{\text{Total Assets}}$

Millennial National Bank’s duration gap is:

$2.53 - 0.65 \times \frac{219}{367} = +2.14$ years

The change in net worth:

Change in value of net worth = $-DA \times \frac{\Delta r}{(1+r)} \times A - [-DL \times \frac{\Delta r}{(1+r)} \times L]$

Explanation:

Leverage Adjusted Duration Gap
= Dollar-weighted duration of Assets Portfolio – Dollar-weighted Duration of Liability Portfolio
× $\frac{\text{Total Liabilities}}{\text{Total Assets}}$

Millennial National Bank’s duration gap is:

$2.53 - 0.65 \times \frac{219}{367} = +2.14$ years

The change in net worth:

Change in value of net worth = $-DA \times \frac{\Delta r}{(1+r)} \times A - [-DL \times \frac{\Delta r}{(1+r)} \times L]$

Comments (0)

No comments yet.

Q.4235 Suppose that Millennial National bank consists of an average asset duration of 2.53 years and an average liability duration of 0.65 years. Its assets size is a total of `$367` million, and the volume of its liabilities is `$219` million. Suppose that its original interest rates were 5% before rising to 8.5%. Compute Millennial National Bank’s estimated leverage adjusted the duration gap and the change in its net worth as a result of the rise in interest rates.

Exam-Like

Community

UAnonymous

Last updated: July 5, 2026 at 07:08

+1.34 years, -$10.34 million

+2.14 years, -D10$12.56 million

+1.34 years, -$13.10 million

+2.14 years, -$26.21 million