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MANAGING INTEREST RATE RISK: DURATION GAP AND MARKET VALUE OF EQUITY - page 22 / 39

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Positive and negative DGAPs

Positive DGAP …indicates that assets are more price sensitive than liabilities, on average.

Thus, when interest rates rise (fall), assets will fall proportionately more (less) in value than liabilities and the MVE will fall (rise) accordingly.

Negative DGAP …indicates that weighted liabilities are more price sensitive than assets.

Thus, when interest rates rise (fall), assets will fall proportionately less (more) in value that liabilities and the MVE will rise (fall).

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