Banque du Langenberg holds $575 million interest producing assets earning a net interest margin (NIM) of 2.50%. The inital net interest income is thus $14.375 million. The bank's President pursues a strategy of holding longer dated, higher risk assets while also increasing leverage and as a result the net interest margin expands by 25 basis points (or 10% on 2.50%) and the | total asset base increases by 20%. What is the new net interest income? Original scenario Net interest margin Total assets (millions) Rise in nim Rise in total assets Original New scenario Scenario Net interest margin 0.00% 0.00% Total assets $0 $0 Rise in nim 0.0% Rise in total assets 0.0% Net interest income $0.000 $0.000

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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**Analysis of Banque du Langenberg's Interest Income Strategy**

Banque du Langenberg holds $575 million in interest-producing assets with an initial net interest margin (NIM) of 2.50%, resulting in a net interest income of $14.375 million.

**Strategic Changes:**
- The bank’s President proposes a strategy involving the acquisition of longer-dated and higher-risk assets.
- This is anticipated to increase the NIM by 25 basis points (a 10% increase from the original 2.50%).
- Additionally, the total asset base is expected to grow by 20%.

**Table Analysis:**

The table outlines two scenarios: 

1. **Original Scenario:**
   - Net interest margin and total assets are left unspecified beyond the given context ($14.375 million on $575 million at 2.50% NIM).

2. **New Scenario:**
   - With the strategic changes, key calculations would include:
      - New NIM: 2.50% + 0.25% = 2.75%
      - New Total Assets: $575 million + 20% increase = $690 million
      - New Net Interest Income: 2.75% of $690 million

Currently, these calculations are left blank in the table but are crucial for understanding the financial impact of the proposed strategy.
Transcribed Image Text:**Analysis of Banque du Langenberg's Interest Income Strategy** Banque du Langenberg holds $575 million in interest-producing assets with an initial net interest margin (NIM) of 2.50%, resulting in a net interest income of $14.375 million. **Strategic Changes:** - The bank’s President proposes a strategy involving the acquisition of longer-dated and higher-risk assets. - This is anticipated to increase the NIM by 25 basis points (a 10% increase from the original 2.50%). - Additionally, the total asset base is expected to grow by 20%. **Table Analysis:** The table outlines two scenarios: 1. **Original Scenario:** - Net interest margin and total assets are left unspecified beyond the given context ($14.375 million on $575 million at 2.50% NIM). 2. **New Scenario:** - With the strategic changes, key calculations would include: - New NIM: 2.50% + 0.25% = 2.75% - New Total Assets: $575 million + 20% increase = $690 million - New Net Interest Income: 2.75% of $690 million Currently, these calculations are left blank in the table but are crucial for understanding the financial impact of the proposed strategy.
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