(based on Chapter 19) Question 2 (of 4) value: 25.00 points If a bank invested S

Question

(based on Chapter 19) Question 2 (of 4) value: 25.00 points If a bank invested S66 million in a two-year asset paying 10 percent interest per year and simultaneously issued a $66 million one-year liability paying 8 percent interest per year, what would be the impact on the bank's net interest income if, at the end of the first year, all interest rates increased by 1 percentage point? (Input the amount as a positive value. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g. 32.16) million. References eBook & Resources Worksheet Difficulty: Medium Check my work

Explanation / Answer

Interet Income for both the year will be same and given by following formula

Interest income = Asset invested * interest rate

= $66 Million * 10% = $6.6 Million

Interest Expense for year 1 = 8 % of liability

Interest Expense for year 2 = 9% of liability

Net interest income will be decreased by $660,000.  

Year 1 Year 2 Interet Income 6,600,000 6,600,000 Interest Expense 5,280,000 5,940,000 Net Interest Income 1,320,000 660,000

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