17

A DI has assets of $18 million consisting of $8 million in cash and $10 million in loans. It has core deposits of $8 million. It also has $5 million in subordinated debt and $5 million in equity. Increases in interest rates are expected to result in a net drain of $2 million in core deposits over the year. If the cost of issuing new short-term debt is 6.5 percent, what is the cost of offsetting the expected drain if the DI increases its liabilities?

Select one:

a. $30,000

b. $10,000

c. $15,000

d. $40,000

e. $25,000