Question

Bank of the Atlantic has liabilities of $4 million with an average maturity of two years...

Bank of the Atlantic has liabilities of $4 million with an average maturity of two years paying interest rates of 4.0 percent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6.0 percent annually.

What is the bank's net interest income in dollars in year 3, after it refinances all of its liabilities at a rate of 6.0 percent?

-$60,000.
-$140,000.
+$140,000.
+$60,000.
+$800,000.
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Answer #1

Answer: the correct option is $60000
Given that the company refinanced its liabilities at 6.0%
Here net interest income is calculated as;
Net interest income=(Interest earning assets × Interest rate earned)-(Interest bearing liabilities*Refinance rate)

Interest earning assets=$5 million=$5000000
Interest rate earned=6%
Interest bearing liabilities=$4 million=$4000000
Refinance rate=6%

Substituting the values in the equation of net interest income.
Net interest income=$5000000*6%-$4000000*6%
=$300000-$240000=$60000

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