If a bank invested $67 million in a two-year asset paying 12 percent interest pe

Question

If a bank invested $67 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $67 million one-year liability paying 9 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))

If a bank invested $67 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $67 million one-year liability paying 9 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))

Explanation / Answer

Ans. Net interest income will decrease by $ 1340000 million. * (2010000 - 670000) 1340000 Year 1 Interest income on asset ($67M * 12%) 8040000 Less: Interest expenses on liabilities ($67M * 9%) -6030000 Net Interest Income 2010000 2 Interest income on asset ($67M * 12%) 8040000 Less: Interest expenses on liabilities [$67M *(9% + 2%)] -7370000 Net Interest Income 670000

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.