Answered: If management expects interest rates to…

If management expects interest rates to vary up to 3 percent during the upcoming year, the bank's ratio of its 1-year cumulative GAP (absolute value) to earning assets should not exceed

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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Concept explainers

Balance Sheet Regulations

A balance sheet is a financial statement that shows the position of a company's assets and liabilities on a specific date. The balance sheet is prepared after preparing the statement of profit and loss statement (income statement). The balance sheet and other financial statements differ in the sense that the balance sheet shows the financial position at any given point in time. In contrast, the other financial statements show the financial performance over a particular duration.

Question

Consider a bank with $350 million in earning assets that expects to generate a
6% NIM.
The bank will risk changes in NIM equal to plus or minus 15% during the year
If management expects interest rates to vary up to 3 percent during the
upcoming year, the bank's ratio of its 1-year cumulative GAP (absolute value)
to earning assets should not exceed
Select one:
Оа 28%
Оь 30%
O c. 25%
O d. 20%

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