A)What is the amount of RSA, RSL and the income gap amount? B) Calculate the duration gap. C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show work D) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work
Q: QUESTION 2 You project that you will be able to invest $1500 this year, $2000 one year from now, and…
A: The future value is the value of funds deposited accumulated along with interest earned on the…
Q: A stock has a beta of .85, the expected return on the market is 11 percent, and the risk-free rate…
A: Expected rate of return is the rate of return that the investor expects on their investment…
Q: Fama (2018) updated his original efficient market hypothesis by arguing that markets are…
A: In 1970, Eugene Fama introduced the Efficient Market Hypothesis (EMH), which argued that financial…
Q: The following graph plots the current security market line (SML) and indicates the return that…
A: As per Capital Asset Pricing Model, the return of a stock is the summation of risk-free rate of…
Q: Why is it relevant to calculate the fixed cost budget? Management must account for these fixed…
A: A fixed cost budget is a financial plan that estimates the total amount of fixed costs that a…
Q: How much do you need in an account in order to withdraw $4000 quarterly for the first 3 years and…
A:
Q: Common Stock C has a standard deviation of return of 10 percent. Common Stock D has a standard…
A: Portfolio variance and standard deviation with two security With standard deviation of security 1…
Q: You are considering investing in one of two projects, which have the following returns and…
A: On the basis of expected return of both projects irrespective of the risks of them, Project B…
Q: Equity = 6,300,000 Debt = 3,920,000 Preferred stock = 6,000,000 Cost of eqiuty = 10.91% cost…
A: The WACC of the company is the average return that the company provides to its stakeholders for…
Q: How can I maximise my return on investment with a balanced scorecard?v
A: The Balanced Scorecard is a strategic management tool that helps businesses align their goals and…
Q: Taking into consideration all the information given, determine the Net Present Value of the…
A: In order to calculate the net present value which is important Matrix in the budgeting decisions…
Q: Unequal Lives The Perez Company has the opportunity to invest in one of two mutually exclusive…
A: The net present value represents the difference between the cash inflows and outflows during the…
Q: ACME Software Company has CURRENT (i.e. today; year "zero") market value of its venture's assets of…
A: Net present value shows the difference between the cash inflows and outflows during the period. It…
Q: he monthly mortgage payment on a house is $824.36, and the homeowner must pay an annual property tax…
A: Mortgage: It is a kind of loan taken by the borrower from the lender for buying a real estate…
Q: You are asked to analyze The Haus of Us, a local manufacturer of house decor and accessories. Last…
A: Here, Dividend in Year 1 "D1"= P 2.00 Dividend in Year 1 "D2"= P 2.00 Dividend from Year 3 to Year 5…
Q: The returns on assets C and D are strongly correlated with a correlation coefficient of 0.80. The…
A: While doing investment analysis we make use of various statistical measures for analytical purposes.…
Q: 0 1 i = 7%/year A = $1000/yr Less than 3950 3 A₁ = $500 @t=5 Between 3950-3400 O Between 3400-3450 O…
A: The concept of money's time value reveals that any sum today is worth more as compared to the same…
Q: The budgeted monthly statement of profit or loss is drawn up on the basis of cash received and cash…
A: A budget is a financial plan that outlines an organization's projected income and expenses over a…
Q: You have been hired as consultants to research, report and present to a senior management team…
A: the answers to the questions are given below
Q: Ken spent 1/4 of his money and an additional $6 on a number of CDs. He then spent 3/5 of the…
A: Let the amount now be “X’, Amount spent on CD is X/4+$6. Amount spent on magazine is “(X-X/4)*3/5 +…
Q: Which one of the following will appear in the cash budget but not in the budgeted statement of…
A: The cash budget is a financial statement that shows the expected cash inflows and outflows of a…
Q: Mayberry, Inc., is considering a design change that will cost $6,000 and will result in an annual…
A: Annual worth is helpful for the interpretation of the data for one year which shows the recovery…
Q: A stock has a beta of 1.06, the expected return on the market is 10 percent, and the risk- free rate…
A: Expected return refers to the gain or loss that is earned over an investment by the investors. It is…
Q: Consider a 3-month European call option on a non-dividend-paying stock. The current stock price is…
A: The call option is an instrument that allows its holder to buy the underlying asset at a fixed…
Q: Suppose that you purchased a Ba rated $5.000 annual coupon bond with an 14.3% coupon rate and a…
A: An entity may raise funds from multiple sources, one such source is bonds. The bonds allows entities…
Q: a. entering cash sales to customers * b. entering a customer's NSF cheque c. entering deposits from…
A: Cash receipt journal It is a journal, used to keep record of the sales items, when cash against it…
Q: the lenzie corporation's common stock has a beta of 1.10. if the risk-free rate is 5.1% and the…
A: Cost of equity capital can be calculated using the Capital asset pricing model (CAPM). CAPM is an…
Q: How much do you need to save each year for 30 years in order to have $775,000, assuming you are…
A: Time = t = 30 years Future value = fv = $775,000 Interest rate = r = 8%
Q: Suppose that the beta of Coca-Cola's common stock is 0.84 and the firm's current debt-to-equity…
A: The beta of a stock is a measure of its volatility or systematic risk in comparison to the overall…
Q: K If there aren't many homes on the market, you'll have buyers competing for the same houses, which…
A: The law of supply and demand is an economic principle that states that the price and quantity of a…
Q: The yield on 3-month Treasury bill is 3.5%, the investor's risk aversion is 2.5, and standard…
A: To estimate the expected rate of return of the market, we can use the Capital Asset Pricing Model…
Q: NoGrowth Corporation currently pays a dividend of $0.44 per quarter, and it will continue to pay…
A: Given: Annual dividend = $0.44 Cost of capital = 11.8%
Q: Scheduled payments of $595, $738, and $603 are due in one-and-a-half years, four-and-a-half years,…
A: Time value of money is the concept that the value of money changes over time due to the potential…
Q: Management: 1. Forward contracts are often valued at £1 million or more, and are not normally used…
A: The forward contract are said to be the contract where the agreement between the buyer and seller…
Q: You predict that interest rates are about to fall. Which bond will show the biggest price increase?…
A: When interest rates fall, bond prices generally rise. The extent of the price increase, however,…
Q: A $100,000 mortgage loan at 6.3% compounded semi-annually has a 25-year amortization period.…
A: A mortgage is a covered loan borrowed to purchase a property. The property itself acts as collateral…
Q: If you earn an annual interest rate of 9.8 percent, how many years will it take to triple your…
A: Future value is the value of an asset or investment at a specified future date, based on the…
Q: As a recent graduate of the UWIOC, The General Manager of the company has hired you to work…
A: WACC: It represents the company's average cost of capital and is estimated by taking the sum of all…
Q: Emmanuel Macron has the following budgeted business transactions for the month of May 2020:…
A: Budgeted cash position = Starting bank balance + Total cash inflows - Total cash outflows…
Q: What are the pros and cons of asking a friend or a family members for financial help?
A: Before contacting a loved one about loan money, it is essential to consider the potential benefits…
Q: As an investor with a two-year desired holding period, you have the option of buying a one-year…
A: To determine which investment is better, we need to calculate the present value of the cash flows…
Q: Problem No. 1 Cash Conversion Cycle Chastain Corporation is trying to determine the effect of its…
A: Ratio Analysis: The magnitude of the difference between two specified values generated from an…
Q: The Greenbriar is an all-equity firm with a total market value of $584,000 and 22,800 shares of…
A: The stock repurchase is a transaction where the company buys back its shares from the shareholders.…
Q: You have been asked to analyze the bids for 200 polished disks used in solar panels. These bids have…
A: This is a problem related to exchange rates. The three suppliers are from three different countries…
Q: The gaming commission is introducing a new lottery game called Infinite Progresso. The winner of the…
A: The break-even point is the level of income that a business needs to achieve in order to be neither…
Q: The Federal Reserve System publishes three definitions of money because different assets vary in the…
A: True, the Federal Reserve System publishes three definitions of money, known as monetary aggregates:…
Q: The current stock price is $10. In each of the next two years, the stock price can either go up by…
A: The binomial option pricing model is a method of option valuation where the final price of the stock…
Q: MCQ: International Financial Management: 1. Currency options provide the right but NOT the…
A: “Since you have posted multiple questions, we will provide the solution only to the first question…
Q: ASSETS Cash & Marketable Securities Accounts Receivable Inventories Other Current Assets Total…
A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…
Q: The answers should be found on the following website; cmegroup . Find the recent quotes for soybean…
A: Soybean futures are traded on various exchanges such as the Chicago Board of Trade (CBOT) and the…
Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
A)What is the amount of RSA, RSL and the income gap amount?
B) Calculate the duration gap.
C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show work
D) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
- Use the following to answer questions 3-4: Use balance sheet available for an FI (all in market values). Consumer loans $150 m Liabilities $300 m Commercial Loans $250 m Equity $100 m Total Assets $400 m Total Liabilities & Equity $400 m The average duration of the loans is 8 years. The average duration of the liabilities is 2 years. 3. What is the duration gap of the bank's portfolio? A. 10 years B. 6.3 years C. 6.5 years D. 7.98 years E. 8.0 years 4. What is the change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 0.07 (1.e., 7 percent)? Assume flat term structure, and parallel shifts in yield curves. Use the duration concept. A. $17.30987 m B. $19.51818 m C. -S 22.59093 m D. -$23.11114 m E. - $24.29906 mUse the balance sheet of a bank below to answer the following. The duration of asset is 1.5 years, the duration of liabilities 2 years. Assets Liabilities Required Reserves 8 m Money Market Deposits 50 m Excess Reserves 7 m 3-year CDs 60 m T-bills 85 m Capital 10 m Mortgages 15m Commercial paper 5m What happens to the value of liability if the interest rate goes down by 1%? up by 2% down by 2% O down by 1.36% O up by 1.36%Consider the following balance sheet for Whiz Financial Services Limited: Assets K Liabilities K Cash 6.25 Equity 25.00 Short term consumer loans (1 yr maturity) 62.50 Demand deposits 50.00 Long term consumer loans (2 yr maturity) 31.25 31.25 Client Savings accounts 37.50 3 month T-Bills 37.50 3 month CDs 50.00 6 month T-Bills 43.75 3 months Bankers Acceptances 25.00 3 year T-Bonds 75.00 6 month commercial paper 75.00 10 year, fixed rate mortgages 25.00 1 year time deposits 25.00 30- year floating rate mortgages 50.00 2-year time deposits 50.00 premises 6.25 - Total 337.50 337.50 Required:A. Calculate the value of the rate sensitive assets, rate sensitive liabilities and therepricing gap over the next year. B. Calculate the expected change in the net interest income for the bank if interestrates rise by 1 percent on both rate sensitive…
- Consider the following Balance Sheet for Forward Thinking Commercial Bank(FTCB) (in millions) ASSETS LIABILITIES Floating rate mortgages 250 Demand deposits 300 (currently 14% annually) (currently 5% annually) 30 years fixed rate loans 1 year CD 50 (currently 9% annually) 120 (currently 8% annually) Equity 20 370 370 a. What is FTCB expected net interest income (NII) at year end? b. What is FTCB expected net interest income at year end if interest rates fell by seven percent (7%). c. What is FTCB expected net interest income at year end if interest rates grew by 300 basis points on assets, but decline by 2% on liabilities.Eagle Bank has the following interest-sensitive assets and interest-sensitive liabilities. Amount maturing in Amount maturing in 30 days (million) 570 330 116 Interest-sensitive assets Loans Securities 30 days (million) 810 63 Interest rate on interest-sensitive assets is 5% Interest rate on interest-sensitive liabilities is 3% Interest-sensitive liabilities Savings deposits Time deposits Money market The interest rate is expected to rise 1% (for both interest-sensitive assets and liabilities) 30 days later. Will Eagle Bank benefit from the interest rate rise? Explain your answer. Show your calculations.Consider the following balance sheet for Whiz Financial Services Limited: Assets K Liabilities K Cash 6.25 Equity 25.00 Short term consumer loans (1 yr maturity)62.50 Demand deposits 50.00 Long term consumer loans (2 yr maturity)31.25 Client Savings accounts 37.50 3 month T-Bills 37.50 3 month CDs 50.00 6 month T-Bills 43.75 3 months Bankers Acceptances 25.00 3 year T-Bonds 75.00 6 month commercial paper 75.00 10 year, fixed rate mortgages 25.00…
- Assume you have the following asset and liability in your balance sheet Asset - Bond AModified Duration = 1.5 yearsValue = RM1 million Liability - Bond BModified Duration 2.6 yearsValue = RM2 million a. Calculate the duration gaps?b. What is the expected change in Net worth if interest increases by 1%?c. What should or could you to achieve immunised balance sheet?Balance Sheet (dollars in thousands) and Duration (in years) Duration AmountT-bills. 0.5 $ 90T-notes 0.9 55T-bonds 4.393 176Loans 7 2,724Deposits. 1 2,092Fed. funds 0.01 238Equity 715What is the average duration of all the assets? What is the average duration of all the liabilities? What is the FI’s leverage-adjusted duration gap? What is the FI’s interest rate risk exposure? If the entire yield curve shifted upward 0.5 percent (i.e., ΔR/(1 + R) = 0.0050), what is the impact on the FI’s market value of equity? If the entire yield curve shifted downward 0.25 percent (i.e., ΔR/(1 + R) = −0.0025), what is the impact on the FI’s market value of equity?Assume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 million duration gap is 0.53 years, net worth reduce by 8000. What should or could you to achieve immunized balance sheet?
- Assume a bank has the following (very simplified) balance sheet. 1)Assets Mortgages Fixed rate, 15 year, annual payments, both the coupon rate and yield-to-maturity are 8% Floating rate, 15 year, rate: LIBOR + 2%, (duration = 0) 2)Liabilities Overnight deposits, rate: 0.6%, (duration = 0) 2 year CD, rate: 2%, assume it is a zero coupon 3 year CD, rate: 4%, assume it is a zero coupon 3) Assignment: Calculate weights which will immunize the portfolio. Note this is a set of weights, there is not one unique solution. You don't have to calculate the full set, just some set of weights which immunizes the portfolio. Now say you can only invest 50% of your assets in floating rate mortgages. What is the minimum amount of interest rate risk you can have? What will happen to the value of your portfolio if interest rates increase by 1%?Consider the following balance sheet Expected Balance Sheet for XYZ Bank Assets Yield Liabilities Cost Rate sensitive $ 1300 8% %$4 1700 8% Fixed rate $500 9% $1500 5% Non earning $ 5100 $. 1800 Equity 1900 Total $ 6900 $6900 What is the Net Interest Margin (NIM)If a bank has gross charge-offs of $25 for the current year, recoveries of $40, and provision for loan losses of $30, how much will the reserve for loan losses change? a. $45 b. $+15 c. none of the above. d. $-15