(Answered)-8.15. Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans....

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8.15.   Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank’s return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%.

 

Solution ID:10137800 | Question answered on 16-Oct-2016

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