Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month...

Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is

?

Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a
(Higher, lower, the same)
interest rate on CDs when they mature, while charging
(Higher, lower, the same) interest rate on the six -year auto loans.

What will happen to the interest rate spread? (choose 1)

It decreases to 0.6% and the North bank's interest income rises.

It becomes equal to 2.9% and the North bank's interest income rises.

It increases to 2.5% and the North bank's interest income falls.

It decreases to 0.6% and the North bank's interest income falls.

Jun 05, 2022

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Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month...

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