Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is ? Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a (Higher, lower, the same) interest rate on CDs when they mature, while charging (Higher, lower, the same) interest rate on the six -year auto loans. What will happen to the interest rate spread? (choose 1) It decreases to 0.6% and the North bank's interest income rises. It becomes equal to 2.9% and the North bank's interest income rises. It increases to 2.5% and the North bank's interest income falls. It decreases to 0.6% and the North bank's interest income falls.
Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is ? Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a (Higher, lower, the same) interest rate on CDs when they mature, while charging (Higher, lower, the same) interest rate on the six -year auto loans. What will happen to the interest rate spread? (choose 1) It decreases to 0.6% and the North bank's interest income rises. It becomes equal to 2.9% and the North bank's interest income rises. It increases to 2.5% and the North bank's interest income falls. It decreases to 0.6% and the North bank's interest income falls.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter11: Determining The Cost Of Capital
Section: Chapter Questions
Problem 16P
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Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is ?
Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a (Higher, lower, the same) interest rate on CDs when they mature, while charging (Higher, lower, the same) interest rate on the six -year auto loans.
What will happen to the interest rate spread? (choose 1)
It decreases to 0.6% and the North bank's interest income rises.
It becomes equal to 2.9% and the North bank's interest income rises.
It increases to 2.5% and the North bank's interest income falls.
It decreases to 0.6% and the North bank's interest income falls.
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