What Is the Asset Adjustment to a Bank's Balance Sheet

question 25

Multiple Choice

What is the asset adjustment to a bank's balance sheet if the bank sold a five-year, 7 percent annual coupon $100,000 bond acquired at par, but now yielding 8 percent? The bond was not in the mark-to-market portfolio.

• A)A $96,007 reduction in assets.
• B)A $96,007 increase in assets.
• C)A $100,000 reduction in assets.
• D)A $100,000 increase in assets.
• E)A $100,000 increase in liabilities.

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Definitions:

Floating-Rate Bond

A bond whose interest payments fluctuate with the market interest rates, rather than being fixed.

Coupon Payment

The annual interest payment made to bondholders, typically expressed as a percentage of the face value.

Interest Rate Index

A benchmark interest rate that serves as a reference point for determining interest rates on various financial instruments or loans.

Coupon Rate

The yearly interest rate that a bond yields, represented as a percentage of its nominal value.