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

question 7

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.

---

Definitions:

Expected Present Value

Expected present value is a financial concept that calculates the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Professional Contract

A legal agreement between a professional and an entity that outlines terms of employment or service provision.

Injury

Physical harm or damage to the body caused by external force, which may result from accidents, falls, hits, weapons, and other causes.

Marginal Utility

The change in total utility generated by consuming one additional unit of a good or service.