A Thrift Has Funded 10 Percent Fixed-Rate Assets with Variable-Rate

question 23

Multiple Choice

A thrift has funded 10 percent fixed-rate assets with variable-rate liabilities at LIBOR + 2 (L + 2) percent.A bank has funded variable-rate assets with fixed-rate liabilities at 6 percent.The bank's variable-rate assets earn LIBOR + 1 (L + 1) percent.The thrift and the bank have reached agreement on an interest-rate swap with the fixed-rate swap payment at 6 percent and the variable-rate swap payment at LIBOR. What will be the net after-swap cost of funds for the thrift if the cash market liabilities are included in the analysis?

• A)Variable-rate at LIBOR.
• B)Fixed-rate at 8 percent.
• C)Fixed-rate at 1 percent.
• D)Fixed-rate at 2 percent.
• E)None of the options.

---

Definitions:

Punishment

A consequence that reduces the likelihood of a behavior being repeated, usually by introducing an unpleasant response or removing a desirable outcome following an undesirable behavior.

Positive Reinforcement

A technique in behavior modification that involves the introduction of a desirable stimulus after a behavior to increase the likelihood of that behavior being repeated.

Learned Helplessness

A psychological condition where an individual learns to feel powerless and unable to avoid negative situations due to previous experiences of failure to do so.

Shocks

Sudden and often violent disturbances or fluctuations in physical or emotional states, or electrical discharges used in medical therapy or experimental research.