Assume an FI Has $50 000 in Assets and $45

question 68

Multiple Choice

Assume an FI has $50 000 in assets and $45 000 in liabilities.Which of the following statements is true if interest rates on both assets and liabilities increase simultaneously?

• A)As the interest rate for both assets and liabilities increase the value of the FI's net worth will remain constant.
• B)As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both decrease.
• C)As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase.
• D)As the interest rate for both assets and liabilities increase the value of the FI's assets and liabilities will both increase; however, as the FI has more assets than liabilities, the increase in the value of the FI's assets will be greater than the increase in the value of its liabilities.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance of a manufacturing facility.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or job orders, based on estimated costs and activity levels.

Manufacturing Overhead

All manufacturing costs that are not directly attributable to a specific product, including indirect labor, maintenance, and utilities.

Machine-Hours

A measure of the total time machines are in operation during a given period, often used in cost accounting to allocate expenses based on machine usage.