Question

A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on$135 million of its liabilities. The bank's interest rate spread is ________.

A. 10.75%
B. 1.25%
C. 8%
D. 12%

Answer 1

The bank's interest rate spread is the difference between the interest earned on assets and the interest paid on liabilities, which in this case is 1.25%.

Step-by-step explanation:

The bank's interest rate spread is calculated as the difference between the interest rate it earns on its assets and the interest rate it pays on its liabilities. In this case, the bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on $135 million of its liabilities.

To calculate the interest rate spread:

1. Determine the interest rates: The bank earns 6% and pays 4.75%.
2. Subtract the interest paid on liabilities from the interest earned on assets: 6% - 4.75% = 1.25%.

Therefore, the bank's interest rate spread is 1.25%, which corresponds to option B.