Management Chapter 8 2 Which theory of term structure states that long-term rates are equal to the geometric average of current and expected short-term rates plus a risk premium that increases with the maturity of the security

65. The cumulative one-year repricing gap (CGAP) for the bank is

66. The gap ratio is

67. Suppose that interest rates rise by 2 percent on both RSAs and RSLs. The expected annual change in net

interest income of the bank is

68. Use the repricing model to determine the funding gap for a maturity bucket of 30 days.

69. Use the repricing model to determine the funding gap for a maturity bucket of 91 days.

70. Use the repricing model to determine the funding gap for a maturity bucket of 365 days.

71. What is the impact over the next 30 days on the dealer’s net interest income if all interest rates rise by 50

basis points?

72. Calculate the funding gap for Gotbucks Bank using (a) a 30 day maturity period and (b) a 91 day maturity

period. (Note: Each maturity period is cumulative.)

73. How will a decrease of 25 basis points in all interest rates affect Gotbuck’s net interest income over a

planning period of 91 days?

74. What does Gotbucks Bank’s 91-day gap positions reveal about the bank management’s interest rate forecasts

and the bank’s interest rate risk exposure?

Saunders – Chapter 08

75. What is the repricing gap for the FI?

76. What will be the FI’s net interest income at year-end if interest rates do not change?

77. Suppose short-term interest rates increase by 1 percent. Calculate the change in net interest income after the

interest rate increase.

78. What is the repricing gap over the 1-year maturity bucket?

79. If all interest rates decrease by 15 basis points, what is the expected impact on the FI’s net interest income?

(Hint: Use the repricing model to answer this question.)

80. What is the repricing gap if a 0 to 3 month maturity gap is used? Ignore runoffs.

81. What is the repricing gap if a 3-year maturity gap is used? Ignore runoffs.

82. What is the repricing gap if a 1-year maturity gap is used if runoffs are also considered?

83. What is the impact on net interest income in year two if interest rates increase by 50 basis points at the end

of year one? Ignore runoffs.

84. What is the weighted average maturity of assets?

85. What is the weighted average maturity of liabilities?

86. What is this FI’s maturity gap?

87. What is market value of the one-year bond if all market interest rates increase by 2 percent?

88. What is market value of the ten-year loan if all market interest rates increase by 2 percent?

89. What is market value of the one-year CD if all market interest rates increase by 2 percent?

90. What is market value of the two-year CD if all market interest rates increase by 2 percent?

91. What is the impact on the FI’s equity of a 2 percent overall increase in market interest rates on all fixed-rate

instruments?

92. Which of the following statements is true?

93. Can the FI immunize itself from interest rate risk exposure by setting the maturity gap equal to zero?

94. What is the weighted average maturity of the assets of the FI?

95. What is the weighted average maturity of the liabilities of the FI?

96. What is the FI’s maturity gap?

97. Is the bank exposed to interest rate increases or decreases and why?

98. What is the change in the value of its assets if all interest rates decrease by 1 percent?

99. What is the change in the value of its liabilities if all interest rates decrease by 1 percent?

100. What is the effect on the value of the FI’s equity if interest rates decrease by 1 percent?

101. What should be the rate on the two-year loan in order for the value of the equity to remain at $10 million?

Assume the interest rates for all other instruments decreased by 1 percent.

102. The term structure of interest rates assumes that

103. The yield curve

104. The unbiased expectations theory of the term structure of interest rates

105. The liquidity premium theory of the term structure of interest rates

106. The market segmentation theory of the term structure of interest rates

107. Which theory of term structure posits that long-term rates are a geometric average of current and expected

short-term interest rates?

108. Which theory of term structure states that long-term rates are equal to the geometric average of current and

expected short-term rates plus a risk premium that increases with the maturity of the security?

109. Which theory of term structure argues that individual investors have specific maturity preferences?