8-73 How will a decrease of 25 basis points in all interest rates affect Gotbuck's net interest income over a planning period of 91 days?
A)+$0.1875 million.
B)+$0.1250 million.
C)-$0.1375 million.
D)+$0.0625 million.
E)0

Question

Quizplus · Accepted Answer

A decrease in interest rates will reduce the interest income earned by Gotbuck. The amount of the reduction will depend on the amount of interest-earning assets held by Gotbuck and the duration of the assets. The question states that all interest rates will decrease by 25 basis points, which is equivalent to 0.25%. The planning period is 91 days, which is approximately 3 months. Assuming that Gotbuck has $100 million in interest-earning assets, the decrease in interest income over the planning period would be:$100,000,000 x 0.25% x 91 days / 360 days = $6,250Therefore, the correct answer is A) +$0.1875 million.

8-73 How Will a Decrease of 25 Basis Points in All