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

question 34

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 bank 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.

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Definitions:

Personality Theory

The study of personality that aims to understand the differences in individuals’ characteristics, behaviors, and thinking patterns.

Psychic Energy

In psychoanalytic theory, a fundamental concept representing the drive or force within the psyche that motivates human behavior.

Libido

To Freud, the form of psychic energy, manifested by the life instincts, that drives a person toward pleasurable behaviors and thoughts. To Jung, a broader and more generalized form of psychic energy.

Primary Motivation

The underlying drives or forces that stimulate action or behavior, often relating to basic needs such as hunger, thirst, or safety.