Question

$1,000 million (or $1 billion) in 10-year fixed-rate loans at 7%. $900 million in savings deposits with a floating interest rate currently at 3%. $100 million in equity. Calculate Net Interest Income if interest rates rise by 2%? $90 million $61 million $43 million $63 million

Answer 1

$25 million

Step-by-step explanation:

The interest paid on the $1 Billion loan would remain 7% as it is fixed rate loan. So the interest expense would be $70 million ($1000m * 7%).

The interest income on the saving deposits would be at floating rate which has been increased from 3% to 5%. So the interest income would be $45 million ($900 * 5%).

Net Interest Income = Interest Income - Interest Expense

Net Interest Income = $70 million - $45 million = $25 million