Bank of the Atlantic has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually.It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually.What is the bank's net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 6.0 percent?

Question

Quizplus · Accepted Answer

In year 3, the bank refinances its $4 million liabilities at 6.0%. The interest expense is $240,000 (6% of $4 million). The interest income from assets remains $300,000 (6% of $5 million). The net interest income is $60,000 ($300,000 - $240,000).

Bank of the Atlantic Has Liabilities of $4 Million with an Average