If the manager of the Friendly Finance Company decides to sell off $10 million of the company’s consumer loans, half maturing within one year and half maturing in greater than two years, and uses the resulting funds to buy $10 million of Treasury bills, what is the income gap for the company?
What will happen to profits next year if interest rates fall by 5 percentage points? How could the Friendly Finance Company alter its balance sheet to immunize its income from this change in interest rates?