e. ABC Bank has total assets of $10 million consisting of $1 million in cash and $9 million in loans. The bank has total

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E Abc Bank Has Total Assets Of 10 Million Consisting Of 1 Million In Cash And 9 Million In Loans The Bank Has Total 1 (213.59 KiB) Viewed 28 times

e. ABC Bank has total assets of $10 million consisting of $1 million in cash and $9 million in loans. The bank has total deposits of $6 million, debt of $2 million, and equity of $2 million. Increases in interest rates are expected to cause a net drain of $2 million in total deposits over the next one year. The cost of deposits is 6 percent and the income on loans is 8 percent. i) The bank decides to reduce its loan portfolio to offset this expected decline in deposits. What will be the change in the net interest income of the bank in next 1 year, after the implementation of this strategy? (3 marks) ii) What will be the size of the bank's total assets, in next 1 year, after the implementation of this strategy? iii) If the interest cost of issuing new short-term debt is expected to be 7.5 percent and cost of deposit remains 6 percent, what would be the change in the net interest income of the bank in next 1 year, of offsetting the expected deposit drain with an increase in loans, after Bank implements this strategy? iv) What will be the size of the bank's total assets, in next 1 year, after the implementation of this strategy?