If a Bank Has a Positive Interest-Sensitive Gap,one of the Possible

question 56

Multiple Choice

If a bank has a positive interest-sensitive gap,one of the possible management responses would be to:

• A)wait for the interest rates to rise or be stable.
• B)shorten asset maturities.
• C)decrease interest-sensitive liabilities.
• D)increase interest-sensitive assets.
• E)extend liability maturities.

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Definitions:

Tax Rate

The percentage at which an individual or corporation is taxed, which can vary depending on income or profits respectively.

WACC

Weighted Average Cost of Capital; the average rate of return a company is expected to pay to all its security holders to finance its assets.

Par Value

The face value of a bond or stock as stated on the certificate or instrument, which differs from its market value.

WACC Calculation

The process of calculating the Weighted Average Cost of Capital, which measures a firm's cost of capital from all sources, weighted according to the proportion of each capital component.