A Thrift Makes Long-Term Fixed-Rate Mortgages Funded with Short-Term Deposits

question 36

Multiple Choice

A thrift makes long-term fixed-rate mortgages funded with short-term deposits and then interest rates rise. Which of the following is true?

• A)Profitability would decline.
• B)Profitability would increase.
• C)The market value of equity increases.
• D)Interest income would fall.
• E)Profitability and market value of equity increase.

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Definitions:

Incremental Analysis

The process of comparing the additional costs and benefits of a decision to determine if it is worthwhile.

Relevant Information

Data that is applicable to the decision-making process, often involving financial and operational outcomes.

Management Decisions

The process by which management selects among available options to guide the operations and set the strategic direction of an organization.

Full Capacity

The maximum level of output that a company can sustain to generate products or services under normal operating conditions.