The First Bank of Podunk Has Recently Suffered Some Extraordinary

question 27

Multiple Choice

The First Bank of Podunk has recently suffered some extraordinary losses on its loan portfolio due to the closing of the largest employer in town. As a result, the bank's management decides to raise the interest rate to new loan applicants. This move is likely to:

• A) increase the profitability of the bank.
• B) cause even greater losses.
• C) significantly increase both loan applicants and profits.
• D) treat the problem of adverse selection that contributed to the losses the bank is experiencing.