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The Average Interest Earned on the Loans Is 6 Percent

Question 103

Multiple Choice

 Assets Liabilities and Equity Cash Required Reserves$2 million Deposits  Loans$10 million Longterm Debt  Equity  Total$12 million Total $8 million $2 million $2 million $12 million \begin{array}{l}\begin{array}{l}\text { Assets} & \text { Liabilities and Equity}\\\text { Cash Required Reserves}&\$ 2 \text { million Deposits } \\\text { Loans}&\$ 10 \text { million Longterm Debt } \\&\text { Equity } \\\text { Total}&\$ 12 \text { million Total }\end{array}\begin{array}{l}\\\$ 8 \text { million } \\\$ 2 \text { million } \\\$ 2 \text { million } \\\$ 12 \text { million }\end{array}\end{array} The average interest earned on the loans is 6 percent and the average cost of deposits is 5 percent.Rising interest rates are expected to reduce the deposits by $3 million.Borrowing more debt will cost the bank 5.5 percent in the short term.
What will be the size of the bank if a stored liquidity management strategy is adopted?


A) $9 million.
B) $11 million.
C) $12 million.
D) $14 million.

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