A bank with a two-year investment horizon has issued a one-year certificate of deposit for $50 million

Question:

A bank with a two-year investment horizon has issued a one-year certificate of deposit for $50 million at an interest rate of 3 percent. With the proceeds, the bank has purchased a two-year Treasury note that pays 5 percent interest. What risk does the bank face in entering into these transactions? What would happen if all interest rates were to rise by 1 percent?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Money Banking And Financial Markets

ISBN: 9781260226782

6th Edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

Question Posted: