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2. The effects of changes in the expected cash flow and the requiredrate of return on a commercial bank's value Use the following table to identify the factors directly affecting expected cash flows and the factors directly affecting the rate of return required by investors. Expected Cash Flows Required Rate of Return by Investors Determinant Change in industry conditions Management abilities Change in the risk-free interest rate Change in economic growth Change in the risk premium O Suppose that the risk-free interest rate increases. Which of the following is an accurate description of the effect of a lower risk-free interest rate on commercial banks' expected cash flows? The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits decreases to a greater degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows decline. The interest paid on deposits increases to a greater degree than the interest earned on loans and investments; expected cash flows decline. Suppose that the economy's money supply increases (but does not cause inflation). Which of the following is an accurate description of the effect of the increase in money supply on the rate of return required by investors? Interest rates rise, the risk-free interest rate rises, and the rate of return required by investors increases. O Interest rates fall, the risk-free interest rate falls, and the rate of return required by investors declines. Interest rates rise but the risk-free interest rate falls, and the rate of return required by investors declines. O Interest rates rise, the risk-free interest rate falls, and the rate of return required by investors increases. 2. The effects of changes in the expected cash flow and the requiredrate of return on a commercial bank's value Use the following table to identify the factors directly affecting expected cash flows and the factors directly affecting the rate of return required by investors. Expected Cash Flows Required Rate of Return by Investors Determinant Change in industry conditions Management abilities Change in the risk-free interest rate Change in economic growth Change in the risk premium O Suppose that the risk-free interest rate increases. Which of the following is an accurate description of the effect of a lower risk-free interest rate on commercial banks' expected cash flows? The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits decreases to a greater degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows decline. The interest paid on deposits increases to a greater degree than the interest earned on loans and investments; expected cash flows decline. Suppose that the economy's money supply increases (but does not cause inflation). Which of the following is an accurate description of the effect of the increase in money supply on the rate of return required by investors? Interest rates rise, the risk-free interest rate rises, and the rate of return required by investors increases. O Interest rates fall, the risk-free interest rate falls, and the rate of return required by investors declines. Interest rates rise but the risk-free interest rate falls, and the rate of return required by investors declines. O Interest rates rise, the risk-free interest rate falls, and the rate of return required by investors increases. 2. The effects of changes in the expected cash flow and the requiredrate of return on a commercial bank's value Use the following table to identify the factors directly affecting expected cash flows and the factors directly affecting the rate of return required by investors. Expected Cash Flows Required Rate of Return by Investors Determinant Change in industry conditions Management abilities Change in the risk-free interest rate Change in economic growth Change in the risk premium O Suppose that the risk-free interest rate increases. Which of the following is an accurate description of the effect of a lower risk-free interest rate on commercial banks' expected cash flows? The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits decreases to a greater degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows decline. The interest paid on deposits increases to a greater degree than the interest earned on loans and investments; expected cash flows decline. Suppose that the economy's money supply increases (but does not cause inflation). Which of the following is an accurate description of the effect of the increase in money supply on the rate of return required by investors? Interest rates rise, the risk-free interest rate rises, and the rate of return required by investors increases. O Interest rates fall, the risk-free interest rate falls, and the rate of return required by investors declines. Interest rates rise but the risk-free interest rate falls, and the rate of return required by investors declines. O Interest rates rise, the risk-free interest rate falls, and the rate of return required by investors increases. 2. The effects of changes in the expected cash flow and the requiredrate of return on a commercial bank's value Use the following table to identify the factors directly affecting expected cash flows and the factors directly affecting the rate of return required by investors. Expected Cash Flows Required Rate of Return by Investors Determinant Change in industry conditions Management abilities Change in the risk-free interest rate Change in economic growth Change in the risk premium O Suppose that the risk-free interest rate increases. Which of the following is an accurate description of the effect of a lower risk-free interest rate on commercial banks' expected cash flows? The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits decreases to a greater degree than the interest earned on loans and investments; expected cash flows rise. The interest paid on deposits increases to a smaller degree than the interest earned on loans and investments; expected cash flows decline. The interest paid on deposits increases to a greater degree than the interest earned on loans and investments; expected cash flows decline. Suppose that the economy's money supply increases (but does not cause inflation). Which of the following is an accurate description of the effect of the increase in money supply on the rate of return required by investors? Interest rates rise, the risk-free interest rate rises, and the rate of return required by investors increases. O Interest rates fall, the risk-free interest rate falls, and the rate of return required by investors declines. Interest rates rise but the risk-free interest rate falls, and the rate of return required by investors declines. O Interest rates rise, the risk-free interest rate falls, and the rate of return required by investors increases