1.Which of the following statement is TRUE?

A. The repricing gap is a measure of the difference between the dollar value of assets that will reprice and the dollar value of liabilities that will reprice over several time periods.

B. The repricing gap focuses on the potential changes in the net interest income variable.

C. None of the listed options is correct

D. The repricing gap can be the result of a rollover of an asset or liability at historical market rate.

2.

If a firm has assets of $400 000 and total debts of $350 000. Using an option pricing model, the implied volatility of the firm's assets is estimated at $21 460. Under the KMV method, what is the expected default frequency (assuming a normal distribution for assets).

A.None of the other listed options is correct.

B. There is 1 percent probability that the firm will be bankrupt.

C.Three is 12.5% probability that the firm will be bankrupt.

D.There is 5% probability that the firm will be bankrupt.

3. The RAROC model uses the duration model formulation to measure the change in the value of the loan for given changes or shocks in credit quality.

Select one:

True

False