Bank of the Atlantic Has Liabilities of $4 Million with an Average

question 122

Multiple Choice

Bank of the Atlantic has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually.It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually.What is the maximum interest rate that it can refinance its $4 million liability and still break even on its net interest income in dollars?

• A)6.5 percent.
• B)7.0 percent.
• C)7.5 percent.
• D)8.0 percent.
• E)8.5 percent.

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Definitions:

Carrying Amount

Carrying amount is the value at which an asset is recognized in the balance sheet after deducting accumulated depreciation and impairment losses.

Revaluation Model

An accounting method that allows assets to be carried at a revalued amount, reflecting their fair value at the date of revaluation.

Impairment Loss

The amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, leading to a reduction in value on the balance sheet.

Revaluation Decrement

The process of decreasing the recorded value of an asset to reflect its current market value, often recognized in financial reporting.