In year one, a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two, a. rates rose 100 basis points. b. rates rose 200 basis points. c. rates fell 100 basis points. d. rates fell 200 basis points. e. None of these options are correct.

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
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In year one, a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,
a.
rates rose 100 basis points.
b.
rates rose 200 basis points.
c.
rates fell 100 basis points.
d.
rates fell 200 basis points.
e.
None of these options are correct.
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