Questions
BU.231.710.51.FA25 The Final Exam
Single choice
The repricing gap model has significant limitations including all of the following EXCEPT:
Options
A.It requires complex duration calculations for all assets and liabilities
B.It assumes all interest rates change by the same amount (parallel shift)
C.It does not account for embedded options like prepayment or early withdrawal
D.It ignores the time value of money and present value effects of rate changes
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Step-by-Step Analysis
To approach this question, I’ll examine what the repricing gap model does and where it can fall short.
Option 1: 'It ignores the time value of money and present value effects of rate changes.' This is a classic limitation of gap analysis. By focusing on whether assets and liabilities reprice within a period, the model typically ignores how ......Login to view full explanationLog in for full answers
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