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How do credit scoring models differ from standard credit scores (like FICO)? Credit scoring models tell you what the interest rate should be on the loan; standard credit scores tell you whether someone should get a loan. Credit scoring models are basod on a financial instibution's proprietary datas standard credit scones are based on general poputation information on credit behavior from credit bureau fles. Credit scoring models are used for industrial lending while standard credit scores are used for small business kending: Credit scoring models use logistic regression to predict defaut while standard credit scores use multiple regression models to predict default. Question 2 2 pts Credit risk can lead to insolvency for financial institutions because Loan losses are charged-off against equity and large loan losses could wipe out a bank's equity capital. Onc foan loss typically leats to many more and thus and wipe out a bank's assets. Credit risk is only present when there is substantial liquidity and interest rate risk. There is nothing a bank can do to measure credit risk and therefore they are subject to random extreme lass events. The repricing model Looks at the impoct of interest rate changes on a financial institution's total assets. Describes the impact of a change of interest rate on the market value of the firm's equity. Concentrates on the impact of interest rate changes on a financial institution's net interest income. All of the above are true. Question 4 2 pts Because of convexity, the duration model of interest rate risk is less accurate when: the interest rate shock is large the interest rate shock is small. Bank assets are large: Assets of the bank are small A bank has the following balance sheet: The bank's one-year repricing gap (millions) is: 425 285 140 A bank has three assets. It has $75 million invested in consumer loans with a 3 -year duration, $39 million invested in T-Bonds with a 16-year duration, and $39 million in 6-month maturity T-Bills with a 0.5 -year duration. What is the duration of the bank's asset portfolio? 5.7 years 63 years 10.2 years 16 years Question 7 2 pts If a bank has a positive duration gap (i.e., DA>kD ) and interest rates increase, the bank's net interest income will increase. net interest income will decrease. net worth will increase. net worth will decrease