CAS Exam 9 Spring 2013, Question 6
Study guide: Exam 9
Given the following information:
- There are no defaults, late payments or prepayments.
- A bank currently offers the following annual rates for one-year and five-year deposits and one-year and five-year loans and is considering modifications to the rates.
| Time to Maturity (Years) | Deposit Rate | Loan Rate |
|---|---|---|
| 1 | 3.5% | 7% |
| 5 | 3.5% | 7% |
Using a theory on the term structure of interest rates, describe a risk of financial distress faced by the bank and propose an action the company could take to resolve this risk.
Part a (1.5 points)
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution