Question 1

Which of the following would generally be considered price sensitive?

Accepted Answer

A) Fed funds purchased 
B) Fed funds sold 
C) Repurchase agreements 
D) Demand deposits 
E) A 20-year zero coupon bond 
A) Fed funds purchased 
B) Fed funds sold 
C) Repurchase agreements 
D) Demand deposits 
E) A 20-year zero coupon bond

Question 2

Modified duration:

Accepted Answer

A) estimates when embedded options will be used. 
B) directly indicates how much the price of a security will change given a change in interest rates. 
C) is always greater than maturity. 
D) All of the above 
E) a.and b. 
A) estimates when embedded options will be used. 
B) directly indicates how much the price of a security will change given a change in interest rates. 
C) is always greater than maturity. 
D) All of the above 
E) a.and b.

Question 3

Discuss the differences between assets and liabilities that are price sensitive and those that are rate sensitive.

Accepted Answer

Price sensitive assets and liabilities r

Question 4

What are the strengths and weaknesses of duration gap analysis?

Accepted Answer

Duration gap analysis is a method used b

Question 5

Which of the following is likely to have a negative effective duration?

Accepted Answer

A) A high coupon, interest only mortgage-backed security that is pre-paying at a high rate. 
B) A low coupon U.S.Treasury bond. 
C) Fed Funds purchased. 
D) Demand deposits 
E) None of the above can have a negative effective duration. 
A) A high coupon, interest only mortgage-backed security that is pre-paying at a high rate. 
B) A low coupon U.S.Treasury bond. 
C) Fed Funds purchased. 
D) Demand deposits 
E) None of the above can have a negative effective duration.

Question 6

Duration of equity measures the dollar change in EVE with a 1% change in interest rates.

Accepted Answer

A) True 
 B)False

Question 7

Why is it difficult to estimate the duration of demand deposits?

Accepted Answer

Demand deposits, such as checking accoun

Question 8

Use the following bank information for questions 
  
-If interest rates rise 1% for all assets and liabilities, what is the approximate expected change in the economic value of equity?

Accepted Answer

A) -$2.56 
B) $5.84 
C) -$5.84 
D) $6.85 
E) -$6.85 
A) -$2.56 
B) $5.84 
C) -$5.84 
D) $6.85 
E) -$6.85

Question 9

Use the following bank information for questions 
  
-What is the bank's weighted average cost of liabilities?

Accepted Answer

A) $44 
B) $76 
C) $80 
D) $94 
E) $102 
A) $44 
B) $76 
C) $80 
D) $94 
E) $102

Question 10

A liability sensitive bank decides to reduce risk by marketing 2-year CDs paying 5% instead of NOW accounts that pay 4%.The bank will benefit if:

Accepted Answer

A) the 2-year rate in one year is less than 5%. 
B) the 1-year rate in one year is less than 6%. 
C) the 1-year rate in one year is greater than 6%. 
D) the 2-year rate in one year is greater than 6%. 
E) Not enough information is given to determine the correct answer. 
A) the 2-year rate in one year is less than 5%. 
B) the 1-year rate in one year is less than 6%. 
C) the 1-year rate in one year is greater than 6%. 
D) the 2-year rate in one year is greater than 6%. 
E) Not enough information is given to determine the correct answer.

Question 11

Put the following steps in duration gap analysis in the proper order.

Accepted Answer

A) III, I, IV, II 
B) I, II, III, IV 
C) III, IV, I, II 
D) IV, I, II, III 
E) II, IV, I, III 
A) III, I, IV, II 
B) I, II, III, IV 
C) III, IV, I, II 
D) IV, I, II, III 
E) II, IV, I, III

Question 12

Economic value of equity analysis focuses on net interest income.

Accepted Answer

A) True 
 B)False

Question 13

Use the following bank information for questions 
  
-What is the bank's duration gap?

Accepted Answer

A) 0.53 
B) 0.73 
C) 0.91 
D) 1.88 
E) 4.58 
A) 0.53 
B) 0.73 
C) 0.91 
D) 1.88 
E) 4.58

Question 14

An investor that matches the duration of an investment with her holding period balances price risk and reinvestment risk.

Accepted Answer

A) True 
 B)False

Question 15

A 20-year zero coupon bond with a face value of $1,000 is currently selling for $214.55.Using the bond's modified duration, what is the approximate change in the price of the bond if interest rates rise by 25 basis points?

Accepted Answer

A) -49.63% 
B) -46.39% 
C) -4.96% 
D) -4.63% 
E) Not enough information is given to answer the question. 
A) -49.63% 
B) -46.39% 
C) -4.96% 
D) -4.63% 
E) Not enough information is given to answer the question.

Which of the following would generally be considered price sensitive?

Modified duration:

Discuss the differences between assets and liabilities that are price sensitive and those that are rate sensitive.

What are the strengths and weaknesses of duration gap analysis?

Which of the following is likely to have a negative effective duration?

Duration of equity measures the dollar change in EVE with a 1% change in interest rates.

Why is it difficult to estimate the duration of demand deposits?

Use the following bank information for questions -If interest rates rise 1% for all assets and liabilities, what is the approximate expected change in the economic value of equity?

Use the following bank information for questions -What is the bank's weighted average cost of liabilities?

A liability sensitive bank decides to reduce risk by marketing 2-year CDs paying 5% instead of NOW accounts that pay 4%.The bank will benefit if:

Put the following steps in duration gap analysis in the proper order.

Economic value of equity analysis focuses on net interest income.

Use the following bank information for questions -What is the bank's duration gap?

An investor that matches the duration of an investment with her holding period balances price risk and reinvestment risk.

A 20-year zero coupon bond with a face value of $1,000 is currently selling for $214.55.Using the bond's modified duration, what is the approximate change in the price of the bond if interest rates rise by 25 basis points?

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

The Effective Use of Capital

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters

Exam 8: Managing Interest Rate Risk: Economic Value of Equity

Which of the following would generally be considered price sensitive?

Modified duration:

Discuss the differences between assets and liabilities that are price sensitive and those that are rate sensitive.

What are the strengths and weaknesses of duration gap analysis?

Which of the following is likely to have a negative effective duration?

Duration of equity measures the dollar change in EVE with a 1% change in interest rates.

Why is it difficult to estimate the duration of demand deposits?

Use the following bank information for questions -If interest rates rise 1% for all assets and liabilities, what is the approximate expected change in the economic value of equity?

Use the following bank information for questions -What is the bank's weighted average cost of liabilities?

A liability sensitive bank decides to reduce risk by marketing 2-year CDs paying 5% instead of NOW accounts that pay 4%.The bank will benefit if:

Put the following steps in duration gap analysis in the proper order.

Economic value of equity analysis focuses on net interest income.

Use the following bank information for questions -What is the bank's duration gap?

An investor that matches the duration of an investment with her holding period balances price risk and reinvestment risk.

A 20-year zero coupon bond with a face value of $1,000 is currently selling for $214.55.Using the bond's modified duration, what is the approximate change in the price of the bond if interest rates rise by 25 basis points?

Banking and the Financial Services Industry

Government Policies and Regulation

Analyzing Bank Performance

Managing Noninterest Income and Noninterest Expense

The Performance of Nontraditional Banking Companies

Pricing Fixed-Income Securities

Managing Interest Rate Risk: Gap and Earnings Sensitivity

Using Derivatives to Manage Interest Rate Risk

Funding the Bank

Managing Liquidity

The Effective Use of Capital

Overview of Credit Policy and Loan Characteristics

Evaluating Commercial Loan Requests and Managing Credit Risk

Evaluating Consumer Loans

Managing the Investment Portfolio

Global Banking Activities

Filters