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Stilwater Bank & Trust Company has an average asset duration of 4.25 years and an average...

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Finance

Stilwater Bank & Trust Company has an average asset durationof 4.25 years and an average liability duration of 2.75 years. Itsliabilities amount to $580 million, while its assets total $620million.

(1) What is the leverage-adjusted duration gap?

(2) Now suppose that interest rates were 6 percent and then riseto 8 percent. What will be the change in the value of the StilwaterBank's net worth as a result of the increase in interest rates?

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Transcribed Image Text

Stilwater Bank & Trust Company has an average asset durationof 4.25 years and an average liability duration of 2.75 years. Itsliabilities amount to $580 million, while its assets total $620million.(1) What is the leverage-adjusted duration gap?(2) Now suppose that interest rates were 6 percent and then riseto 8 percent. What will be the change in the value of the StilwaterBank's net worth as a result of the increase in interest rates?

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