A Thrift Has Funded 10 Percent Fixed-Rate Assets with Variable-Rate

question 23

Multiple Choice

A thrift has funded 10 percent fixed-rate assets with variable-rate liabilities at LIBOR + 2 (L + 2) percent. A bank has funded variable-rate assets with fixed-rate liabilities at 6 percent. The bank's variable-rate assets earn LIBOR + 1 (L + 1) percent. The thrift and the bank have reached agreement on an interest-rate swap with the fixed-rate swap payment at 6 percent and the variable-rate swap payment at LIBOR.
-What will be the net after-swap yield on assets for the thrift?

• A)Variable-rate at LIBOR.
• B)Fixed-rate at 8 percent.
• C)Fixed-rate at 1 percent.
• D)Fixed-rate at 2 percent.
• E)None of the above.

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Definitions:

Average Number

A basic statistical measure represented by the sum of all values divided by the count of values, commonly used to describe the central tendency of data.

Probability

The measure of the likelihood that an event will occur, quantified as a number between 0 and 1.

System

A group of interacting or interrelated entities that form a unified whole, used to analyze or study a specific domain or set of procedures.

Expected Number

The calculated average or mean value of a numeric dataset, predicting the central value around which other values tend to cluster.