CHAPTER 3: RATES OF RETURN

Suppose that Yankee Savings Bank pays its depositors an interest rate on six-month CDs that is 25 basis points (0.25%) higher than the six-month Treasury bill rate. Because its assets are long-term fixed-rate mortgages, Yankee would prefer to be borrowing at a ten-year, fixed interest rate. If it borrowed on its own, Yankee would have to pay 12% per year. On the other hand, suppose Global ... ................
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