First National Bank

Assets Mn $	Liabilities Mn $
5 year variable rate 30	2 year variable rate 50
5 year fixed rate 50	2 year fixed rate 20
	Bank Capital 10

If interest rates rises by 5 percentage points, say from 10% to 15%, profits (measured using GAP analysis) will ...

Group of answer choices

decline by $0.5 million.

decline by $ 1 million.

increase by $1 million.

increase by $0.5 million.

If a bank has ________ rate-sensitive assets than liabilities, then ________ in interest rates will increase bank profits according to GAP analysis .

Group of answer choices

more; an increase

fewer; no change

fewer; an increase

more; a decrease

Consider the following balance sheet of Bank A which made a net profit after tax of 1 million.

Reserves 10 mn	Deposits 95 mn
Loans 90 mn	Capital 5 mn

The equity multiplier is ....

Group of answer choices

10

20

1

5

Consider the following balance sheet of Bank A which made a net profit after tax of 1 million.

Reserves 10 mn	Deposits 95 mn
Loans 90 mn	Capital 5 mn

The Return on Assets (ROA) is ...

Group of answer choices

20%

5%

10%

1%

Consider the following balance sheet of Bank A which made a net profit after tax of 1 million.

Reserves 10 mn	Deposits 95 mn
Loans 90 mn	Capital 5 mn

The return on equity (ROE) is ........

Group of answer choices

10%

1%

20%

5%

If a bank has $100,000 of checkable deposits, a required reserve ratio of 10 percent, and it holds $50,000 in reserves, then the largest deposit outflow it can sustain without violating the reserve requirement is .....

Group of answer choices

$20,000.

$40,000.

$44,444.

$50,000.

If a bank has $100,000 of checkable deposits, a required reserve ratio of 10 percent, and it holds $50,000 in reserves, when a client withdraws $30000 from her checking account

i) Bankss liabilities drop by $30000

ii) Banks assets drop by $30000.

iii) Remaining reserves are sufficient to meet the reserve requirement

Of the above ....

Group of answer choices

All i, ii, and iii are correct

Only ii is correct

Only i is correct

Only i and ii are correct

The "lemons problem" exists because of ....

Group of answer choices

economies of scale.

transactions costs.

asymmetric information.

rational expectations.

A borrower engages in an activity not mentioned in the loan contract. This is called ...

Group of answer choices

asymmetric information.

noncollateralized risk.

moral hazard.

adverse selection.

To say that stock prices follow a "random walk" is to argue that stock prices .....

Group of answer choices

tend to follow a trend.

rise, then fall, then rise again.

rise, then fall in a predictable fashion.

error in prediction is not systematic.

If a forecast made using all available information is not perfectly accurate, then it is

Group of answer choices

still a rational expectation.

an adaptive expectation.

a second-best expectation.

not a rational expectation.

If expectations are formed adaptively, then people

Group of answer choices

use more information than just past data on a single variable to form their expectations of that variable.

use only the information from past data on a single variable to form their expectations of that variable.

None of the above.

use forecast data on a single variable to form their expectations of that variable.

In the Gordon Growth Model, a sales price far in the future does not significantly affect the current stock price because

Group of answer choices

the present value is almost zero as the stock may not be sold in the near future.

future price is zero

the present value cannot be computed.

the sales price does not affect the current price.

What is the value of a stock according to Generalized Valuation Model which pays $10 per share annually and will be sold at $25 after one year? The required rate of return is 5%.

Group of answer choices

35

10

36.8

33.3