Question

ABC Bank had interest revenues of $50 million last year and $20 million in interest expenses. About 40% of ABC 's $500 million in assets are rate-sensitive, while about 50% of $400 million of its liabilities are rate-sensitive. ABC Bank's net interest margin is percent. a)6.0 b)4.0 c)7.0 d) 5.0

Answer 1

The net interest margin for ABC Bank, which is calculated as the difference between interest revenues and expenses divided by the average earning assets, comes out to be 6%.

Step-by-step explanation:

The net interest margin (NIM) for ABC Bank can be calculated using the formula: NIM = (Interest Revenues - Interest Expenses) / Average Earning Assets. In this case, ABC Bank's interest revenues are $50 million and its interest expenses are $20 million. The average earning assets are assumed to be its total assets, which are $500 million. Therefore, the calculation would be ($50 million - $20 million) / $500 million, resulting in a NIM of 6%.