Question

If earning assets are 100M, total assets are 200M, interest expense is 50M, interest income is 40M, ROA is 4%, then Net interest margin is:

A) 10%
B) -5%
C) -10%
D) 5%

Answer 1

The Net interest margin is calculated by the formula (Interest Income - Interest Expense) / Earning Assets, which with the given numbers would result in -10%. Therefore, the correct answer for the Net interest margin given the provided data is C) -10%.

Step-by-step explanation:

The student is asking about how to calculate the Net interest margin (NIM) given certain financial figures of a hypothetical bank. The Net interest margin is calculated by taking the difference between the interest income and the interest expense, divided by the earning assets. Using the provided information:

• Interest Income = $40M
• Interest Expense = $50M
• Earning Assets = $100M

To calculate the NIM, we use the formula: (Interest Income - Interest Expense) / Earning Assets. Plugging in the values we get: ($40M - $50M) / $100M, resulting in -$10M / $100M which simplifies to -10%. Answer C) -10% is the correct option for the Net interest margin.

The additional background information on assets, liabilities, and balance sheet provided doesn't directly impact the calculation we are dealing with in this question.