Question

Calculate the Interest Income, Interest Expense, Net Interest Income, and Net Interest Margin for the
bank listed below. Use Total Assets for ratios (rather than earning assets).  "%" denotes the interest rate
earned or paid on the designated asset or liability category. Please show your work in order to receive credit.

Assets	Amount	%		Liabilities and Equity	Amount	%
Cash	80	0.0%		Non-interest deposits	100	0.0%
Securities	270	5.5%		NOW checking	170	2.0%
Loans, net	600	7.5%		MMDA	330	4.0%
Fed funds sold	0			CDs	160	5.0%
Non-earning assets	50			Fed Funds purchased	150	3.0%
	$1,000			Equity	90
					$1,000

Answer 1

Calculation of Interest Income:-

Interest Income = Interest earned on Securities + Interest earned on Loans

= ( $270 * 5.5% ) + ( $600 * 7.5% )

= $14.85 + $45

= $59.85

Calculation of Interest Expenses:-

Interest Expense = Interest paid on NOW checking + Interest paid on MMDA + Interest paid on CDs + Interest paid on Fed Funds purchased

= ( $170 * 2% ) + ( $330 * 4% ) + ( 160 * 5% ) + ( $150 * 3% )

= $3.4 + $13.2 + $8 + $4.5

= $29.10

Calculation of Net Interest Income:-

Net Interest Income = Interest Income - Interest Expense

= $59.85 - $29.10

= $30.75

Calculation of Net Interest Margin:-

Net Interset Margin = Net Interest Income / Total Assets

= $30.75 / $1,000

= 3.075%