The Tidewater State Bank has $1000 in total assets (all of which are earning assets), $700 of which will be replaced with in the next 90 days. This bank also has $800 in total liabilities, $400 of which will be replaced within the next 90 days. Currently, the bank is earning 8% on its assets and is paying 5% on its liabilities. If interest rates do not change in the next ninety days, what is this bank's net interest margin?

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15 July, 20:17

The Tidewater State Bank has $1000 in total assets (all of which are earning assets), $700 of which will be replaced with in the next 90 days. This bank also has $800 in total liabilities, $400 of which will be replaced within the next 90 days. Currently, the bank is earning 8% on its assets and is paying 5% on its liabilities. If interest rates do not change in the next ninety days, what is this bank's net interest margin?

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German Collins · Answer 1

4.6%

Explanation:

The computation is shown below:

= (Interest on assets - Interest on liabilities) : (Total earning assets)

where,

Interest on assets = (8% + 2% * $700) + 8% * $300

= $70 + $24

= $94

Now the interest on liabilities equal to

= 5% * 400 + (5% + 2% * 400)

= $20 + $28

= $48

So, the net interest margin equal to

= ($94 - $48) : ($1,000)

= 4.6%