If the First National Bank has a gap equal to a negative $30 million, then a 5 percentage point increase in interest rates will cause profits to Question 4 options: A) decline by $1.5 million. B) increase by $15 million. C) decline by $15 million. D) increase by $1.5 million.

A. Decline by $1.5million

Explanation:

First national bank has a negative gap of $30million.

Then, a 5% point increase in interest rate,

(5 ÷ 100) * $30,000,000 = $1,500,000

Therefore, a 5 percentage point increase in interest rate will attract $1.5 million decline in profit.

These means first national bank benefits from the 5 percentage point increase and decline in the negative Gap by $1.5 million dollars.

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