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Assume the following (unrealistic) facts: The banks loan portfolio is $100,000,000 and their cost of funds is 2% All loans are based on a rate
Assume the following (unrealistic) facts:
The banks loan portfolio is $100,000,000 and their cost of funds is 2%
All loans are based on a rate structure of Prime + 2% with a floor of 4% and no ceiling.
Choose two years from the Prime Rate list found on the link provided and compare the banks net income for those two years. Assume interest only payments. You will simply find the interest income and subtract the cost of funds.
Obviously this bank is at the mercy of the Prime Rate changes. What could they do to mitigate this risk?
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