If a Bank Invested $75 Million in a Two-Year Asset

question 30

Multiple Choice

If a bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $75 million one-year liability paying 10 percent interest per year,what would be the net interest income in two years if,at the end of the first year,all interest rates increased by 1.5 percentage point?

• A)Decrease by $0.725 million
• B)Decrease by $1.875 million
• C)Increase by $1.875 million
• D)Increase by $0.725 million
• E)Decrease by $0.385 million

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Definitions:

Company Picnic

A social event organized by a company for its employees, often held outdoors and including food and recreational activities, intended to foster team spirit and camaraderie.

Stock Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company at a specified price before a certain date.

Open Market

An economic system in which prices for goods and services are determined by unrestricted competition between privately owned businesses.

Capital Gains Rate

The tax rate applied to the profit from selling an asset that has increased in value.