Consider an FI that issues $200 million of liabilities with 2 years to maturity to finance the purchase of $200 million of assets with a 1-year maturity. Suppose that the cost of funds for the FI is 5 percent per year and the interest return on the assets is 9 percent per year. 1.1.

Calculate the FIs dollar value of profit in year 1 and indicate what type of risk the intermediary is subject to. (0.25 points)

a. $8 million and refinancing risk b. $8 million and reinvestment risk c. $18 million and reinvestment risk d. $10 million and refinancing risk

is it a or b