1. Which of the following statements is true concerning a bank's duration gap?

A. All of the other responses are true statements

B. If a bank has a zero duration gap and interest rates rise, the bank's net worth will not change

C. If a bank has a positive duration gap and interest rates rise, the bank's net worth will decline

D. If a bank has a negative duration gap and interest rates rise, the bank's net worth will increase

E. A bank with a positive duration gap has a longer average duration for its assets than for its liabilities

2. A bank has an average asset duration of 5 years and an average liability duration of 2 years. This bank has total assets of $500 million and total liabilities of $400 million. Currently, market interest rates are 10 percent. If interest rates fall by 1 percent (to 9 percent), what is this bank's change in net worth?

a. net worth will increase by $13.64 million

b. either net worth will not change at all, or non of the other options are correct

c. net worth will decrease by $15.45 million

d. net worth will increase by $15.45 million

e. net worth will decrease by $13.64 million

3. A bond has a duration of 7.5 years. Its current market price is $1125. Interest rates in the market are 7% today. It has been forecasted that interest rates will rise to 9% over the next couple of weeks. How will this bond's price change in percentage terms?

a. this bond's price will fall by 2%

b. this bond's price will rise by 2%

c. this bond's price won't change

d. this bond's price will rise by 14.02%

e. this bond's price will fall by 14.02%