1. The Credit Rating Agencies downgraded Canada's corporate bonds, citing high default risk due to COVID 19 high costs. Based on your understanding of default risk, what will happen to the risk premium? Is it going to tighten, widen, or stay the same? Please provide your answer using detailed explanation and use graphs to illustrate.
2. Would a bank with a positive duration gap experience an increase or decrease in the market value of net worth with rising interest rates? Please provide your answer using detailed explanation.
3. A bank with $150 reserves, $850 loans, $1,000 deposits, and 10% reserve ratio. Calculate the largest loan this bank can make.