If a bank expands in size but the ratio of assets to liabilities remains constant, why would the leverage adjusted duration gap most likely decrease? (Question 5 Wiley Morning Mock)
thanks!
Higher leverage
Pintoj I believe you’re wrong here. If the ratio of assets and liabilities is remaining constant then leverage would remain constant. leverage is Liabilities/Assets, so lets say for example its 2:1, then it would would stay 2:1 in this case. I am not sure why LADG would decrease in this case either… unless there are other pertinent case facts that analystDC is not presenting to us. I don’t know if the duration of the assets or liabilities would have shifted as the bank expanded.
Duration of Assets became shorter and duration of liabilities longer…
lol well there is your answer… LADG = Duration(Assets) - [Leverage*Duration(Liabilities)]
Got it- thanks! Been staring at the books too long…
haha i think dead brain cells and burn out are all too common at this stage 