he lending division of AusBank originates a 5-year, $10 million loan and charges the borrower 5% p.a. Simultaneously, AusBanks funding division issues $10 million in 1-year CDs paying 2.5%. AusBank could have chosen to invest in 5-year Treasury Bonds paying 3.5% p.a., and investors could acquire 1-year treasury securities that pay 2%. Calculate the value in percent of the net interest margin and its 3 components or spreads.

Net Interest Margin:

Credit Spread:

Interest rate risk spread:

Funding spread:

Bank XYZ extended a $50 million, 10-year loan to a borrower and funded this by issuing a $50 million bond. The borrower pays 5% p.a. compounded monthly, while investors in the bond earn 2.3% p.a. compounded quarterly. What is the spread on this asset/liability pairing? Hint: Use the effective annual rate formula.