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MANAGING INTEREST RATE RISK: DURATION GAP AND MARKET VALUE OF EQUITY - page 18 / 39

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Calculating DGAP

DA = (700/1000)*2.69 + (200/1000)*4.99 = 2.88

DL = (620/920)*1.00 + (300/920)*2.81  = 1.59

DGAP = 2.88 - (920/1000)*1.59 = 1.42 years

What does 1.42 mean?

The average duration of assets > liabilities,

hence asset values change by more than liability values.

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