Question

A bank has an interest rate spread of 150 basis points on $30 million in earning assets funded by interest-bearing liabilities. However, the interest rate on its assets is fixed and the interest rate on its liabilities is variable. If all interest rates go up 50 basis points, the bank's new pretax net interest income will be ________.

Answer 1

new pretax net interest income = $300,000

Step-by-step explanation:

given data

interest rate spread = 150 basis points

interest bearing liabilities = $30 million

to find out

bank's new pretax net interest income will be

solution

we will get bank's new pretax net interest income that will be express as

new pretax net interest income = $30 million × ( 1.5 % - 0.5 % ) ...............1

solve it and we get

new pretax net interest income = $30 million × ( 1.5 % - 0.5 % )

new pretax net interest income = $30,000,000 × ( 1 % )

new pretax net interest income = $300,000