The Following Information Is About Current Spot Rates for Second

question 56

Multiple Choice

The following information is about current spot rates for Second Duration Savings' assets (loans) and liabilities (CDs) .All interest rates are fixed and paid annually. $$\begin{array} { | c | l | } \hline \text { Assets } & { \text { Liabilities } } \\\hline \text { 1-year loan rate: } 7.50 \text { percent } & \text { 1-year CD rate: } 6.50 \text { percent } \\\hline \text { 2-year loan rate: } 8.15 \text { percent } & \text { 2-year CD rate: } 6.65 \text { percent } \\\hline\end{array}$$ [Reference: 8-95]
-If rates do not change, the balance sheet position that maximizes the FI's returns is

• A)a positive spread of 15 basis points by selling 1-year CDs to finance 2-year CDs.
• B)a positive spread of 100 basis points by selling 1-year CDs to finance 1-year loans.
• C)a positive spread of 85 basis points by financing the purchase of a 1-year loan with a 2-year CD.
• D)a positive spread of 165 basis points by selling 1-year CDs to finance 2-year loans.
• E)a positive spread of 150 basis points by selling 2-year CDs to finance 2-year loans. [Refer to: 9-95]

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Definitions:

Lorenz

Konrad Lorenz, an Austrian zoologist, ethologist, and ornithologist known for his foundational work in the study of animal behavior.

Equilibration

The main source of development, consisting of a process of achieving a balance between the child’s present understanding and the child’s new experiences.

New Experiences

New experiences refer to encounters or activities that individuals have not previously had, offering opportunities for learning, growth, and development.