Consider the repricing model in Chapter $8.$ Suppose a bank has $$100$ in $1-$year assets and

$$100$ in $2-$year liabilities. Both the assets and the liabilities are subject to the same interest rate

changes. True or False: If interest rates increase now the bank forecasts a positive change in net

income over the next year.

a$)$ True

b$)$ False

Consider again the repricing model in Chapter $8.$ Suppose a bank has $$100$ in $1-$year assets

and $$60$ in $1-$year liabilities. Interest rates on assets increase by $1\%$ and interest rates on

liabilities increase by $2\%.$ True or False: The bank forecasts an increase in net income over the

next year as a result of the rate changes.

a$)$ True

b$)$ False

Consider two bonds with $$100$ par and the same yield. Bond A has a $3\%$ coupon. Bond $B$ has

a $4\%$ coupon. The bonds are otherwise identical. True or False: Bond B has a higher Macauley

Duration than Bond A$.$

a$)$ True

b$)$ False

True or False: You would expect a bond's Modified Duration to be smaller than its Macauley

Duration.

a$)$ True

b$)$ False

A bank has long$-$term loans and short$-$term liabilities. To immunize its equity against

interest rate changes, the bank could enter into a derivative contract whose value decreases

when rates increase.

a$)$ True

b$)$ False