Suppose a bank earned $12 million in interest on its assets of $157 million, it paid out $8 million in interest on its liabilities (excluding capital) of $172 million, and it paid its workers $3 million in total compensation.The bank's profit equals
A)$12 million.
B)$8 million.
C)$3 million.
D)$1 million.

Question

Quizplus · Accepted Answer

The bank's net interest income is the difference between the interest earned on assets and the interest paid on liabilities (excluding capital):
Net interest income = $12 million - $8 million = $4 million

To calculate the profit, we need to subtract the bank's total expenses from its total revenues:
Total revenue = $12 million + $4 million = $16 million
Total expenses = $8 million + $3 million = $11 million

Profit = Total revenue - Total expenses = $16 million - $11 million = $5 million

Therefore, the bank's profit equals $5 million, which is closest to option D ($1 million).

Suppose a Bank Earned $12 Million in Interest on Its