Community Center Bank earned 6% on its assets and paid 5% on its liabilities in year one. The bank was facing reinvestment risk. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two

Community Center Bank earned 6% on its assets and paid 5% on its liabilities in year one. The bank was facing reinvestment risk. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter12: Money, Banking And The Financial System

Section: Chapter Questions

Problem 3WNG

See similar textbooks

Related questions

Q: A project has an expected return on investment of 7% and the firm’s hurdle rate is 5%. Explain why…

A: A hurdle rate, usually described as a minimum acceptable rate of return or MARR, is the minimum…

Q: Respond to the question with a concise and accurate answer, along with a clear explanation and…

A: The money market savings account pays a higher after-tax interest rate than the regular savings…

Q: Wizard, Inc. has a subsidiary in a country where the government allows only a small amount of…

A: Debt financing : Debt financing refers to the practice of raising funds by borrowing money from…

Q: A firm is evaluating a project that requires equipment that costs $725,000. Installation costs are…

A: To calculate the firm's depreciation expense in year three for the equipment falling under the MACRS…

Q: 1. A 325,000 sf office building is 25% vacant. The remaining occupied sf generates $9,000,000 in…

A: Gross potential income (GPI) alludes to the absolute rental income a property can deliver if all…

Q: The gross fixed capital formation is $5300 million and change in stock is $2100 million Calculate…

A: Gross domestic capital formation refers to a situation where their is net rise in physical asset by…

Q: Nodhead College needs a new computer. It can either buy it for $295,000 or lease it from Compulease.…

A: Cost of Computer = $ 2,95,000 and Lease Payments = $ 71,000 for 6 years. Rate of discount = 6 % Part…

Q: A firm has a total assets of 59,000,000, that can be sold in he market today for $5,500,000, otal…

A: Here we calculate the difference between book value of share and liquidation value per share by…

Q: Find sales if value of output is $6400 million and change in stock is $1000 million

A: The information being given to us is as follows:- Value of output = ₹6400 Change in stock = $1000…

Q: Dime-a-Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for…

A: In accounting break even the number of units sold so that overall profit is zero and all costs fixed…

Q: Required information [The following information applies to the questions displayed below.] Trading…

A: Cash collected from sales refers to the net cash that is received from the customers. By selling the…

Q: help please answer in text form with proper workings and explanation for each and every part and…

A: The above answer can be explained as under - Cash collections for first month = Cash sales + Cash…

Question

Community Center Bank earned 6% on its assets and paid 5% on its liabilities in year one.
The bank was facing reinvestment risk. In year two, the bank had a negative profit spread of
100 basis points. Which of the following is true? In year two
Select one:
a. Rates rose 200 basis points
Ob. Rates fell 200 basis points
Oc. Rates fell 300 basis points
Ⓒd. Community Center Bank became insolvent
e. Rates rose 300 basis points
A

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduce the concept of reinvestment risk.

VIEW

Step 2: Determine which of the following is true.

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

The balance sheet below represents the current financial situation of a commercial bank named Novatia Bank. Suppose that a 15-year-old takes the $150 cash that she received for her birthday and deposits it in her checking account at Novatia Bank. Assets Cash: $650 Property: $1050 What will happen to the bank's liabilities after the $150 deposit. Balance Sheet Deposits increase cash assets, so they do not affect the liabilities side of a bank's balance sheet. The value of checkable deposits will decrease by $150. The value of checkable deposits will increase by $150. The value of stock shares will decrease by $150. The value of stock shares will increase by $150. Liabilites Stock Shares: $950 Checkable Deposits: $750 What will happen to the bank's assets after the $150 deposit? The value of propery holdings will decrease by $150. The value of cash holdings will increase by $150. The value of cash holdings will decrease by $150. Since deposits are a liability, there is no change to the…
The bank's assets are $1M of cash, $50M of commercial loans, $9M of Treasury bonds, and $100M of mortgages. The bank also has $140M of non-transaction deposits and $10M of preferred stock that matures in ten years. The allowance for loan losses is $3M. a. Calculate the total assets 1. b. Calculate the risk-adjusted assets 120 c. What are the common equity Tier I (CET1) risk-based capital ratio, Tier I risk-based capital ratio, the total risk-based capital ratio, and the total capital (leverage) ratio?
Give correct typing answer with explanation and conclusion What are the strengths and weaknesses of investment performance of Foreign & Colonial Investment Trust PLC for 2019 to 2021.
Much appreciate. Please solve it soon
The following financial statement is for the current year. From the past, you know that 10% of fixed-rate mortgages prepay each year. You also estimate that 10% of checkable deposits and 20% of savings accounts are rate sensitive. Second National Bank Assets Liabilities Reserves $ 1,500,000 Checkable Deposits $ 15,000,000 Securities Money Market Deposits $ 5,500,000  1 Year $ 6,000,000 Savings Accounts $ 8,000,000 1 to 2 Years $ 8,000,000 CDs  2 years $ 12,000,000 Variables-rate $ 15,000,000 Residential Mortgages  1 Year $ 22,000,000 Variables-rate $ 7,000,000 1 to 2 Years $ 5,000,000 Fixed-rate $ 13,000,000  2 years $ 2,500,000 Commercial Loans Fed Funds $ 5,000,000  1 Year $ 1,500,000 Borrowings 1 to 2 Years $ 18,500,000  1 Year $ 12,000,000  2 years $ 30,000,000 1 to 2 Years $ 3,000,000 Buildings, etc. $ 2,500,000  2 years $ 2,000,000 Bank Capital $ 5,000,000 Total $100,000,000 Total $100,000,000 (a) What is the current Income GAP for Second National Bank? (b) What will…
DMacroeco X + A learn.vccs.edu/courses/362470/quizzes/2905964/take E Apps M Gmail YouTube Maps Get My Payment | . Question 13 Which of the following will yield to a bank the lowest return? O Short term loans with little risk. Long term loans with a lot of risk. There is no distinction in the types of loans and risk or potential return. Loans made where the liquidity rate is the highest. Question 14 2 pts The Federal Reserve has the duty of regulating the nation's money supply. True False Question 15 2 pts P Type here to search
Some bank has assets totaling $1B. This bank has $25M in capital, and earned $10M last year. What is this bank’s earnings-to-capital ratio and equity multiplier?
15. If a bank’s return on assets (ROA) is 1%, and its asset-to-equity ratio (equity multiplier) is 10, then the bank’s return on equity (ROE) is Question 15 options: a) 100%. b) 5%. c) 1%. d) 10%.
10. . First national bank has liabilities of $1.5 million and owner’s equity of $550,000. First National Bank’s assets are: $100,000. $700,000. $950,000. $2,050,000.
ABC bank has assets of 180 million and a a net income after taxes of $4 million; and bank capital of $14 million. a. What is the bank's return on assets. b. What is the bank's debt-to-equity ratio?
“Bank managers should always seek the highest returnpossible on their assets.” Is this statement true, false, oruncertain? Explain your answer
V1 Consider a bank with the following balance sheet: Assets-150 Liabilities-110 Capital-40 a) What is this bank’s leverage ratio? A. 0.27 B. 0.36 C. 2.75 D. 3.75 E. 13.63 b) Suppose that the bank’s assets earn 3% interest and the bank’s liabilities pay 2% interest, what is the bank’s expected profit per unit of capital? A. 0.01 or 1% B. 0.0336 or 3.36% C. 0.0575 or 5.75% D. 0.2667 or 26.67% E. 0.3636 or 36.36%