1. Which of the following statements is true about EVE (economic value of equity) interest rate risk models?
2. 1. They express risk in terms of cumulative gap.
   2. They only reflect risk over a short horizon, such as a year.
   3. They express interest rate risk in terms of potential change in the theoretical value of the bank.

2. Which of the following statements is true regarding capital requirements for banks?
3. 1. Lower capital levels reduce the risk of bank failures.
   2. Higher capital levels reduce risk of bank failures and taxpayer-funded bailouts, but they also reduce shareholder profitability ratios, such as ROE.
   3. Higher capital requirements benefit smaller banks in relation to larger banks, because small banks have better access to sources of capital.

3. Your bank owns a significant amount of mortgage-backed securities. If mortgage interest rates drop substantially, which of the following would be likely to happen?
4. 1. The yield on the investment portfolio would rise.
   2. The duration of the investment portfolio would increase.
   3. The yield on the investment portfolio would decline.