For a Bank That Has a Positive Duration Gap, a Decrease

question 26

Multiple Choice

For a bank that has a positive duration gap, a decrease in interest rates will cause a(n) _______ in the economic value of assets that is ______ than the _______ in the economic value of liabilities, and a(n) _______ in the economic value of equity.

• A) increase, greater, decrease, increase
• B) increase, less, increase, decrease
• C) increase, greater, increase, increase
• D) decrease, greater, decrease, increase
• E) decrease, less, decrease, decrease

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Definitions:

Discount

A reduction from the usual cost of something, often applied to prompt payments or for certain groups of people like students or seniors.

Issue Price

The price at which new securities are offered to the public by an issuer.

Present Value

Today's value of a future financial sum or series of payments, calculated with a certain return rate.

Market Rate

The current price or interest rate of goods, services, or securities in the marketplace, determined by supply and demand forces.