The Average Duration of the Loans Is 10 Years -What Is the Change in the Value of the FI's

question 8

Multiple Choice

The average duration of the loans is 10 years. The average duration of the deposits is 3 years. $$\begin{array} { | l | r | l | r | } \hline \text { Consumer loans } & \$ 50 \text { million } & \text { Deposits } & \$ 235 \text { million } \\\hline \text { Commercial Loans } & \$ 200 \text { million } & \text { Equity } & \$ 15 \text { million } \\\hline \text { Total Assets } & \$ 250 \text { million } & \text { Total Liabilities \& Equity } & \$ 250 \text { million } \\\hline\end{array}$$
-What is the change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 10 percent ?

• A)-$,979,091.
• B)-$16,318,182.
• C)-$15,979,091.
• D)+$16,318,182.
• E)+$979,091.

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Definitions:

Renewal Effect

The psychological phenomenon where previously extinguished responses reappear upon return to the original context.

Extinction

In conditioning, the process by which a conditioned response diminishes and eventually disappears following repeated exposure to the conditioned stimulus without the unconditioned stimulus.

Spontaneous Recovery

Spontaneous recovery refers to the reappearance of a previously extinguished conditioned response after a period of non-exposure to the conditioned stimulus.

Conditioned Responses

Conditioned responses are the behaviors that result from the association between a previously neutral stimulus and a conditioned stimulus through conditioning.