Suppose a bank earned $173 million in interest on its assets of $2,153 million, it paid out $81 million in interest on its liabilities (excluding capital) of $2,007 million, and it paid its workers $71 million in total compensation.The bank's spread is approximately
A)2 percent.
B)3 percent.
C)4 percent.
D)5 percent.

Question

Quizplus · Accepted Answer

Spread is the difference between interest earned on assets and interest paid out on liabilities (excluding capital).

Spread = (Interest earned on assets / Total assets) - (Interest paid out on liabilities / Total liabilities)

= (($173 million / $2,153 million) - ($81 million / $2,007 million)) x 100

= (0.0803 - 0.0403) x 100

= 4%

Therefore, the bank's spread is approximately 4 percent, which is option C.

Suppose a Bank Earned $173 Million in Interest on Its