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charges 6% interest. Seeing this sit- uation, how could you make a riskless profit witho using any of your own money? You should provide an explicit strategy for achieving th and explain any problems you might have carrying it out in practice. If the two banks

charges 6% interest. Seeing this sit- uation, how could you make a riskless profit witho using any of your own money? You should provide an explicit strategy for achieving th and explain any problems you might have carrying it out in practice. If the two banks

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose two banks XYZ and ABC are equally rated (as re- gards risk). Suppose that XYZ offers and charges customers 4% interest on deposits or loans, while ABC offers and charges 6% interest. Seeing this sit- uation, how could you make a riskless profit without using any of your own money? You should provide an explicit strategy for achieving this, and explain any problems you might have carrying it out in practice. If the two banks were not equally rated, what possible reason could you give for the difference in interest rates?
Transcribed Image Text:Suppose two banks XYZ and ABC are equally rated (as re- gards risk). Suppose that XYZ offers and charges customers 4% interest on deposits or loans, while ABC offers and charges 6% interest. Seeing this sit- uation, how could you make a riskless profit without using any of your own money? You should provide an explicit strategy for achieving this, and explain any problems you might have carrying it out in practice. If the two banks were not equally rated, what possible reason could you give for the difference in interest rates?
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