If First State Bank Has a Gap Equal to a Positive

question 18

Multiple Choice

If First State Bank has a gap equal to a positive $20 million,then a 5 percentage point drop in interest rates will cause profits to

• A) increase by $10 million.
• B) increase by $1.0 million.
• C) decline by $10 million.
• D) decline by $1.0 million.

---

Definitions:

Log Transformation

A mathematical operation that converts a variable using the logarithm, often used to stabilize the variance or to make the data conform more closely to a normal distribution.

Scatterplots

A type of plot or graphical representation used to display and assess the relationship between two quantitative variables.

Cubic Relationships

Refers to relationships between variables where one variable changes in proportion to the cube of another.

Quadratic

Pertaining to an equation, function, or term of the second degree, usually taking the form ax^2 + bx + c where a, b, and c are constants.