Assume all interest is paid annually. All coupon instruments are priced at par. 1 year Treasury...

 

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Assume all interest is paid annually. All coupon instruments are priced at par. 1 year Treasury bill rate 2 year Treasury note rate 2 year AAA-corporate debt rate 1 year CD rate 2 year CD rate Treasury note futures rate 4.75% 4.9% 5.00% 4.80% 4.95% 4.90% Questions i. If your bank wanted to maximize net interest income, what position (borrow and lend) would you put on? ii. What would be the risk exposure of the position that maximizes net interest income in (i)? iii. If your bank puts on a position to maximize net interest income, what will be the impact on the bank's end of year 2 net interest income if all interest rates immediately (at t=0) increase 25 basis points? Assume all interest is paid annually. All coupon instruments are priced at par. 1 year Treasury bill rate 2 year Treasury note rate 2 year AAA-corporate debt rate 1 year CD rate 2 year CD rate Treasury note futures rate 4.75% 4.9% 5.00% 4.80% 4.95% 4.90% Questions i. If your bank wanted to maximize net interest income, what position (borrow and lend) would you put on? ii. What would be the risk exposure of the position that maximizes net interest income in (i)? iii. If your bank puts on a position to maximize net interest income, what will be the impact on the bank's end of year 2 net interest income if all interest rates immediately (at t=0) increase 25 basis points?

Answer rating: 100% (QA)

i To maximize net interest income the bank should borrow funds at the lowest interest rate and lend ... View the full answer