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Consider an FI that issues $200 million of liabilities with two years to maturity to finance the purchase of $200 million of assets with a one year maturity. Suppose that the cost of funds for the FI's is 5 percent per year and the interest return on the assets is 9 percent per year.

A. Calculate the FI's profit spread and dollar value of profit in year 1

B. Calculate the profit spread and dollar value of profit in year 2 if the FI can reinvest its assets at 9 percent.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91944536

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