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Asset and Liability Spread Consider the following scenario: As a manager of a finance company, you are attempting to increase the spread between the rate
Asset and Liability Spread
Consider the following scenario:
As a manager of a finance company, you are attempting to increase the spread between the rate earned on your assets and the rate paid on your liabilities.
(a) Assume that you expect interest rates to decline over time. Should you issue bonds or commercial paper in order to obtain funds?
(b) If you expect interest rates to decline, will you benefit more from providing medium-term fixed rate loans to consumers or floating rate loans to businesses?
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