# Solution Library

# Calculate Net Interest Income Of Bank From Assets And Liabilities

**Question**

A bank has liabilities of $4 million with an average maturity of two years paying interest rates of 4 percent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6 percent annually.

1. What is the bank’s net interest income for the current year?

a. $300,000.

b. $140,000.

c. $160,000.

d. $280,000.

e. $ 80,000.

2. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 6 percent?

a. -$ 60,000.

b. -$140,000.

c. +$140,000.

d. +$ 60,000.

e. +$800,000.

3. What is the bank’s net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 8 percent?

a. -$20,000.

b. -$10,000.

c. -$15,000.

d. +$20,000.

e. +$10,000.

4. 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.

e. 8.5 percent.**Summary**

This question belongs to Finance and it is about a bank which has $4 million in liabilities and $5 million in assets with difference in interest rates. Various questions like net interest income, interest income if the bank refinances its liabilities, etc have been answered in the solution. **Total Word Count 147**

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