Consider an Asset with a Current Market Value of $250

Multiple Choice

Consider an asset with a current market value of $250 000 and a duration of 3.3 years. Assume the asset is partially funded through zero-coupon bonds which currently sells for $225 000 and has a maturity of 4 years. The current discount rate is 15 per cent. Which of the following statements is true?

A) The FI is benefiting from increasing interest rates as it has a negative duration gap of 0.3 years.
B) The FI is exposed to increasing interest rates as it has a negative duration gap of 0.3 years.
C) The FI is exposed to increasing interest rates as it has a positive duration gap of 0.3 years.
D) The FI is exposed to decreasing interest rates as it has a positive duration gap of 0.3 years.