Chapter 12 Ans - Western Washington University

12. A bank has issued a one-year certificate of deposit for $5 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a 2 year discount Treasury note that pays 4 percent. What risk does the bank face in entering into these transactions? At the end of one year, this bank will have to pay the CD holder $5.1 million. ................
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