Question

A bank is earning 6 percent on its $150 million in earning assets and is paying 4.75 percent on its liabilities. The bank's interest rate spread is __________. Multiple Choice 1.25 percent 1.26 percent 4.75 percent 6.00 percent 10.75 percent

Answer 1

1.25 percent

Explanation:

Relevant data provided

Interest earned = 6%

Interest paid on liabilities = 4.75%

The computation of interest rate spread is shown below:-

Interest rate spread = Interest earned - Interest paid on liabilities

= 6% - 4.75%

= 1.25%

Therefore for computing the interest rate spread we simply applied the above formula and ignore all other amount as it is not relevant.