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True/ False questions (Each worth 1 point)
Problems (Total 23 points)
1. A financial institution has the following balance sheet structure:
Assets Liabilities and Equity
Cash $1,000 Certificate of Deposit $10,000
Bond $10,000 Equity $1,000
Total Assets $11,000 Total Liabilities and Equity $11,000
The bond has a 10-year maturity and a fixed-rate coupon of 10 percent. The certificate
of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects
no additional asset growth.
a. What will be the net interest income (NII) at the end of the first year? Note: Net
interest income equals interest income minus interest expense.
2. A bank invested $50 million in a two-year asset paying 10 percent interest per annum
and simultaneously issued a $50 million, one-year liability paying 8 percent interest per
