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

question 33

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 cost of funds for the thrift if the cash market liabilities are included in the analysis?

• 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:

Endometrium

The inner lining of the uterus, which thickens during the menstrual cycle in preparation for possible pregnancy.

Myometrium

The middle layer of the uterine wall, consisting of smooth muscle fibers, responsible for uterine contractions.

Serous Membrane

A thin layer of tissue that covers internal body cavities, secreting a fluid that lubricates membrane surfaces.

Endometrium

The inner lining of the uterus, which thickens during the menstrual cycle in preparation for possible implantation of an embryo.