Assuming that the average duration of its assets is four years, while the average duration of its...

1) If interest rates rise by 5 percentage points, say from 10 to 15%, bank profits (measured using gap analysis) will

A) decline by $0.5 million.

B) decline by $1.5 million.

C) decline by $2.5 million.

D) increase by $2.0 million.

2) Assuming that the average duration of its assets is four years, while the average duration of its liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to ________ by ________ of the total original asset value.

A) decline; 5 percent

B) decline; 10 percent

C) decline; 15 percent

D) increase; 20 percent

3) Duration analysis involves comparing the average duration of the bank\"s ________ to the average duration of its ________.

A) securities portfolio; non-deposit liabilities

B) assets; liabilities

C) loan portfolio; deposit liabilities

D) assets; deposit liabilities

4) Because of an expected rise in interest rates in the future, a banker will likely

A) make long-term rather than short-term loans.

B) buy short-term rather than long-term bonds.

C) buy long-term rather than short-term bonds.

D) make either short or long-term loans; expectations of future interest rates are irrelevant.