For a Commercial Bank, When the Average Duration of Assets

question 9

Multiple Choice

For a commercial bank, when the average duration of assets exceeds the average duration of liabilities, the duration gap is

• A)zero.
• B)positive.
• C)negative.
• D)either b or c, depending on the maturities of the assets .

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Definitions:

Security Market Line

A representation in financial markets of the relationship between risk and expected return, used in the Capital Asset Pricing Model.

Overpriced Security

A security trading at a price believed to be higher than its theoretical value or intrinsic worth.

Expected Market Rate

The anticipated rate of return on an investment as predicted by investors based on historical market data and trends.

Abnormal Return

Return on a stock beyond what would be predicted by market movements alone. Cumulative abnormal return (CAR) is the total abnormal return for the period surrounding an announcement or the release of information.