Schwezer Practice Exam 1, Afternoon Q 44- Answer
Currently, Worth is “matching” its balance sheet asset/ liability durations by funding long-term assets with fixed liabilities. This minimizes equity volatility. Entering into a receive fixed, pay floating swap will reduce the absolute duration of the liabilities.
My question:
How does a fixed asset (IE building) have a duration on a balance sheet? I can see if they capitalized interest during construction, how it might have a some interest rate exposure. But not how it would have continued interest rate exposure.