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?

Question

contestada

Respuesta :

ACCESS MORE ACCESS MORE ACCESS MORE ACCESS MORE

nicof2010 nicof2010 · Answer 1 · 2020-04-21T06:42:28+02:00

Answer:

The net interest income in two years would $1,500,000 and $375,000

Explanation:

In order to calculate the net interest income in two years, we have to calcuate the following:

First we have to Calculate the interest income:

Year 1 = $ 75,000,000*12% = 9,000,000

Year 2 = $75,000,000*12% = 9,000,000

Also, we have to Calculate the interest expense

Year 1 = ·$75,000,000 * 10% = $7,500,000

Year 2 = $75,000,000 * (10%+1.5%) = $8,625,000

Finally we can calculate the Net Interest Income which is = Interest income - Interest expense

Hence interest income of Year 1 = $9,000,000 - $7,500,000 = $1,500,000

interest income of Year 2 = $9,000,000 - $8,625,000 = $375,000