Question

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4. Interest rate risk: Gap analysis vs duration analysis Which of the following accurately defines duration analysis? The weighted average of time until repayment of the price of a bond for a bond with a fixed cash flow o The difference between the amount of liabilities and the amount of assets on which interest rates are due to reset during a specific time period What information do bank managers need to perform duration analysis? Check all that apply. The capacity of their depositors Market values of assets and liabilities The weighted averages of credit scores of their customers The weighted average of times until payment as a function of the present value of the payment Which of the following best describes the difference between duration analysis and interest rate gap analysis? Duration analysis overlooks the fact that sometimes the amount of income rate-sensitive assets can excess the amount of income rate- sensitive liabilities. Unlike interest rate gap analysis, duration analysis does not take into account that some assets or liabilities are more sensitive to interest rate changes. Unlike interest rate gap analysis, duration analysis takes into account that some assets or liabilities are more sensitive to interest rate changes. Duration analysis ignores the fact that the weighted average of times until payment can be zero.

Answer 1

2.

The weighted average of times until payment as a function of the present Value of the payment

3.

Duration analysis overlooks the fact that sometimes the amount of income rate sensitive assets can excess the amount of income rate sensitive liabilities.