9-85 If rates do not change,the balance sheet position that maximizes the FI's returns is
A)a positive spread of 15 basis points by selling 1-year CDs to finance 2-year CDs.
B)a positive spread of 100 basis points by selling 1-year CDs to finance 1-year loans.
C)a positive spread of 85 basis points by financing the purchase of a 1-year loan with a 2-year CD.
D)a positive spread of 165 basis points by selling 1-year CDs to finance 2-year loans.
E)a positive spread of 150 basis points by selling 2-year CDs to finance 2-year loans.

Question

Quizplus · Accepted Answer

To maximize returns, an FI should aim for a positive spread, which is the difference between the interest rate earned on assets and the interest rate paid on liabilities. 
Choice D offers a positive spread of 165 basis points by selling 1-year CDs to finance 2-year loans, which is the highest spread among all the choices. This will result in higher interest income, leading to higher returns for the FI.

9-85 If Rates Do Not Change,the Balance Sheet Position That