If a bank invested $59 million in a two-year asset paying 11 percent interest pe

Question

If a bank invested $59 million in a two-year asset paying 11 percent interest per year and simultaneously issued a $59 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 2 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)) (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))

Net interest income will decrease by $ million?.

Explanation / Answer

After one year, interest on investment would be 11%+2%=13% and interest on liability would be 8%+2%= =10%.

Net Interest income = Interest on investment – interest on liability

                                        = 59,000,000 x 13% -59,000,000 x 10%

                                        = 1,770,000

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