Sample test questions for Test 2, FINA 465
Chapter 8
1)
If interest rates decrease 50 basis points for an FI that has a gap of $5 million, what is the
expected change in net interest income?
$5M * (.005) =
$25,000
2)
If interest rates decrease 40 basis points (0.40 percent) for an FI that has a cumulative gap
of $25 million, what is the expected change in net interest income?
$25M *(.004) = +$100,000 (2pts)
The next 2 questions refer to the following information.
Assets
Rate
Liabilities
Rate
Rate Sensitive
Rate Sensitive
$35,000,000
10 percent
$40,000,000
8 percent
Fixed Rate
Fixed Rate
$21,000,000
9 percent
$12,000,000
7 percent
Nonearning
Equity
$4,000,000
$8,000,000
3)
What is the repricing gap for the FI?
$35,000,000  $40,000,000 = $5,000,000
4)
Suppose shortterm interest rates increase by 1 percent. Calculate the change in net
interest income after the interest rate increase.
$5M*.01= $50,000
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View Full DocumentChapter 9
Use the following information to answer the next 4 questions. A bond is scheduled to mature in
two years. Its coupon rate is 9 percent with interest paid annually. This $1,000 par value bond
carries a yield to maturity of 10 percent.
5)
What is the bond's price?
($90 / 1.1) + ($1,090 / 1.1^2) = $982.64
6)
What is the duration of the bond?
[($90*1 / 1.1) + ($1,090*2 / 1.1^2)] / $982.64 = 1.917 years
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 Spring '11
 Berger
 Interest Rates, Debt, Interest, Interest Rate

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