Suppose a bank makes a two-year $20,000 loan with the entire principal amount due in two years at an annual rate of 4.25%. The bank funds this with a six-month $20,000 CD at a cost of 1.75 %. What is the bank's six month static GAP? O $20,000 O $10.000 O $0 O $10,000 O $20,000

Suppose a bank makes a two-year $20,000 loan with the entire principal amount due in two years at an annual rate of 4.25%. The bank funds this with a six-month $20,000 CD at a cost of 1.75 %. What is the bank's six month static GAP? O $20,000 O $10.000 O $0 O $10,000 O $20,000

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

Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.

Question

Suppose a bank makes a two-year $20,000 loan with the entire principal amount due in two years at an annual rate of 4.25%. The bank funds
this with a six-month $20,000 CD at a cost of 1.75%. What is the bank's six month static GAP?
O $20,000
O $10.000
O $0
O $10,000
O $20,000

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