Which of the following is false regarding duration gap analysis?Question 1Answera.Duration gap accounts for bank leverage.b.Duration gap analysis indicates the potential change in a bank’s market value of equity.c.Duration gap accounts for the present value of cash flows associated with all liabilities.d.Duration gap analysis does not classify assets as rate-sensitive.e.Duration gap analysis indicates the potential change in a bank’s net interest income.

Which of the following statements is FALSE?A.For a given maturity fixed-income asset, duration decreases as the market yield increases. B.Duration of a zero coupon bond is equal to the bond's maturity. C.Duration considers the timing of all the cash flows of an asset by summing the product of the cash flows and the time of occurrence. D.The economic meaning of duration is the interest elasticity of a financial asset’s price. E.Duration increases with the maturity of a fixed-income asset at a decreasing rate.

Which of the following statements is TRUE?A.Duration is the weighted-average time to maturity on the loan using the present values of the cash flows as weights.B.An FI can immunize its portfolio by matching the maturity of its asset with its liabilities. C.The smaller the leverage-adjusted duration gap, the more exposed the FI is to interest rate shocks. D.The larger the numerical value of duration, the more sensitive is the price of that asset or liability to changes or shocks in interest rates.E.Setting the duration of the assets higher than the duration of the liabilities will exactly immunize the net worth of an FI from interest rate shocks.

An FI has financial assets of $800 and equity of $50. If the duration of assets is 1.21 years and the duration of all liabilities is 0.25 years, what is the leverage-adjusted duration gap? A.0.8844 years.B.Cannot be determined.C.0.9000 years.D.0.9756 years.E.0.9600 years.

Which of the following statements is false? A. Bonds with shorter maturities, all else being equal, have higher durations. B. A zero coupon bond with a longer maturity is more sensitive to changes in the interest rate than a shorter maturity zero coupon bond. C. Bonds with higher coupon rates, all else being equal, have lower durations. D. The higher the convexity of a bond (in absolute terms) the more inaccurate its duration is as a measure of interest rate sensitivity.

Which of the following statements is TRUE with regard to the following statement: Immunizing the balance sheet to protect equity holders from the effects of interest rate risk occurs when A.When the modified duration is equal to the dollar duration.B.the effect of a change in the level of interest rates on the value of the assets of the FI is exactly offset by the effect of the same change in interest rates on the liabilities of the FI.C.the maturity gap is zero, so that all assets have a matching-maturity liability.D.the modified duration gap of the balance sheet is zero.E.the repricing gap is zero, so that all assets have a matching liability that reprices at the same time.