Question
A bank is projecting a decline in deposits of $10 over the course of the next six months. Currently they pay 4% on deposits, earn
A bank is projecting a decline in deposits of $10 over the course of the next six months.
Currently they pay 4% on deposits, earn 7% on loans. The cost of new debt is 7.5%.
What is the bank’s financing gap?
What is the cost of addressing this decline of deposits using stored liquidity?
Purchased liquidity?
Which method should the bank choose?
ASSETS LIABILTIES CASH 20 DEPOSITS 60 LOANS 80 DEBT 20 EQUITY 20
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Finance Applications and Theory
Authors: Marcia Cornett, Troy Adair
3rd edition
1259252221, 007786168X, 9781259252228, 978-0077861681
