Question
1) During the first year, Trust Bank has $150 million in one-year loans earning a fixed interest rate equal to ( 9%.) During the First
1) During the first year, Trust Bank has $150 million in one-year loans earning a fixed interest rate equal to ( 9%.) During the First year Trust Bank has $150 million in deposits, and the maturity of these deposits is 3 years. The bank has to pay 6% on its deposits.
A.Is Trust Bank making a profit on these operations?
Why or why not?
B. During the second year, people become pessimistic and their appetite for borrowing is reduced. Trust Bank is forced to reduce the interest on its loans to 5.5%. Is Trust Bank suffering from refinancing risk, credit risk, or reinvestment risk during the second year? Explain your answer.
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