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The Following Information Is About Current Spot Rates for Second

question 25

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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. 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.   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. If rates do not change, the balance sheet position that maximizes the FI's returns is


Definitions:

Preferred Stock

A class of ownership in a corporation with a fixed dividend that must be paid out before dividends to common stockholders, and with generally no voting rights.

Callable

Describes a financial security that the issuer has the right to redeem or 'call back' before its maturity date, often at a predetermined price.

Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, typically with dividend payments that are prioritized over those of common stock.

Stock Listing

The inclusion of a company's shares on a stock exchange where they can be bought and sold by investors.

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