last answer is not 4.6 19-1 Consider the following income statement for Watchove
ID: 2656520 • Letter: L
Question
last answer is not 4.6
19-1
Consider the following income statement for WatchoverU Savings Inc. (in millions):
What is WatchoverU’s expected net interest income at year-end? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))
What will be the net interest income at year-end if interest rates rise by 1 percent? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. (e.g., 32.16))
Consider the following income statement for WatchoverU Savings Inc. (in millions):
Explanation / Answer
a.
Net interest income = Floating rate mortgage value x current rate + Fixed rate mortgage value x fixed rate - Now account value x current rate - Time deposits x time deposit rate
Net interest income = 58 x 12% + 58 x 9% - 78 x 8% - 24 x 8%
Net interest income = $4.02 Million
.
b.
***Assuming Time deposits are locked for more than 1 year. Hence no change in interest rates.
Fixed rate mortgage will have no change in interest rate.
.
Net interest income = Floating rate mortgage value x current rate + Fixed rate mortgage value x fixed rate - Now account value x current rate - Time deposits x time deposit rate
Net interest income = 58 x 13% + 58 x 9% - 78 x 9% - 24 x 8%
Net interest income = $3.82 Million
Important Note:
***If time deposits are maturing in one year then answer for option b. will $3.58 million
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