assume the rate sensitive assets earn an apr of 3.82%and rsl earn an apr of 2.95

Question

assume the rate sensitive assets earn an apr of 3.82%and rsl earn an apr of 2.95%

A bank has the following balance sheet: Assets Liabilities and Equity APR $m APR $m Rate sensitive $520,000 Rate sensitive $345,000 Fixed rate 4.25% 755,000 Fixed rate 3.25% 805,000 Non-earning 265,000 Equity 390,000 Total Assets $1,540,000 Total Liabilities and Equity $1,540,000

assume the rate sensitive assets earn an apr of 3.82%and rsl earn an apr of 2.95%

a) What is the expected net interest income at the end of year end? Interest earned on assets = Interest paid on liabilities =

Explanation / Answer

Bank has Rate sensitive assets = $520,000 million

Bank has Rate sensitive liabilities = $345,000 million

APR is annual percentage rate

APR on rate sensitive Assets = 3.82%

So interest earned on rate sensitive assets = 0.0382*520000 = $19,864 million

Fixed rate assets = $755,000 million

Interest on Fixed rate assets = 4.25%

So interest earned on fixed rate assets = 0.0425*755000 = $32,087.50 million

Total interest earned = Interest earned on rate sensitive assets + interest earned on fixed rate assets = 19864+ 32087.50 = $51,951.50 million

APR on rate sensitive Liabilities = 2.95%

So interest paid on rate sensitive liabilities = 0.0295*345000 = $10,177.50 million

Fixed rate liabilities = $805,000 million

Interest on Fixed rate liabilities = 3.25%

So interest paid on fixed rate liabilities = 0.0325*805000 = $26,162.50 million

Total interest paid = Interest paid on rate sensitive liabilities + interest paid on fixed rate liabilities = 10177.50 + 26162.50 = $36,340 million

So expected net Interest income = Interest earned on assets - interest paid on liabilities = 51951.50 - 36340.00 = $15,611.50 million

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