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Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The duration the assets is two y
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Answer #1

Adjusted duration Gap = DA - [DL*(TL/TA)]

DA = Duration of Assets = 2

DL = Duration of Liabilities = 10

TA= Total Assets = $ 150 million

TL = Total Liabilities = $135 million

Adjusted duration Gap = 2 -[10*(135/150)]

= 2 - 9 = -7

So, Row Banks has a negative adjusted duration gap.

A Long position in T-bond futures should be used to hedge the interest rate risk.

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