The Average Interest Earned on the Loans Is 6 Percent

question 49

Multiple Choice

$\begin{array}{l}\begin{array}{l}\text { Assets} & \text { Liabilities and Equity}\\\text { Cash Required Reserves}&\$ 2 \text { million Deposits } \\\text { Loans}&\$ 10 \text { million Longterm Debt } \\&\text { Equity } \\\text { Total}&\$ 12 \text { million Total }\end{array}\begin{array}{l}\\\$ 8 \text { million } \\\$ 2 \text { million } \\\$ 2 \text { million } \\\$ 12 \text { million }\end{array}\end{array}$ The average interest earned on the loans is 6 percent and the average cost of deposits is 5 percent.Rising interest rates are expected to reduce the deposits by $3 million.Borrowing more debt will cost the bank 5.5 percent in the short term.
What will be the size of the bank if a purchased liquidity management strategy is adopted?

• A)$9 million.
• B)$11 million.
• C)$12 million.
• D)$14 million.

---

Definitions:

Point Estimate

A single value given as an estimate of a population parameter, derived from sample data.

Population Parameter

A characteristic or measure that describes an aspect of an entire population, such as its mean or standard deviation.

Sampling Error

The difference between the sample statistic and the actual population parameter, which occurs by chance because the sample is not a perfect representation of the population.

Inspiratory Reserve Volume

The maximum amount of air that can be inhaled after a normal inhalation.