$$\begin{array} { | l | c | c | l | c | c | }
\hline \text { Assets } & \text { Amount } & \text { Rate } & \text { Liabilities } & \text { Amount } & \text { Rate } \
\hline \begin{array} { l }
\text { Rate } \
\text { Sensitive }
\end{array} & \$ 35,000,000 & 10 \% & \begin{array} { l }
\text { Rate } \
\text { Sensitive }
\end{array} & \$ 40,000,000 & 8 \% \
\hline \text { Fixed Rate } & \$ 21,000,000 & 9 \% & \text { Fixed Rate } & \$ 12,000,000 & 7 \% \
\hline \text { Non-earning } & \$ 4,000,000 & & \text { Equity } & \$ 8,000,000 & \
\hline
\end{array}$$
-Suppose short-term interest rates increase by 1 percent. Calculate the change in net interest income after the interest rate increase.
A)$50,000.
B)$18,900.
C)$40,400.
D)$53,900.
E)$32,000.

Question

$$\begin{array} { | l | c | c | l | c | c | } 
\hline \text { Assets } & \text { Amount } & \text { Rate } & \text { Liabilities } & \text { Amount } & \text { Rate } \
\hline \begin{array} { l } 
\text { Rate } \
\text { Sensitive }
\end{array} & \$ 35,000,000 & 10 \% & \begin{array} { l } 
\text { Rate } \
\text { Sensitive }
\end{array} & \$ 40,000,000 & 8 \% \
\hline \text { Fixed Rate } & \$ 21,000,000 & 9 \% & \text { Fixed Rate } & \$ 12,000,000 & 7 \% \
\hline \text { Non-earning } & \$ 4,000,000 & & \text { Equity } & \$ 8,000,000 & \
\hline
\end{array}$$
-Suppose short-term interest rates increase by 1 percent. Calculate the change in net interest income after the interest rate increase.
A)$50,000.
B)$18,900.
C)$40,400.
D)$53,900.
E)$32,000.

Quizplus · Accepted Answer

The change in net interest income is calculated by finding the difference in interest income and interest expense due to the rate change. Rate-sensitive assets increase by $350,000 (1% of $35,000,000), and rate-sensitive liabilities increase by $400,000 (1% of $40,000,000). The net change is $350,000 - $400,000 = -$50,000.

-Suppose Short-Term Interest Rates Increase by 1 Percent