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Question
In year one, a bank facing reinvestment risk earns 11% on its assets and pays 10% on its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,
A. rates rose 100 basis points.
B. rates rose 200 basis points.
C. rates fell 100 basis points.
D. rates fell 200 basis points.
E. none of the above
Answer
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