If a bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $75 million one-year liability paying 10percent interest per year, what would be the net interest income in two years if, at the end of the first year, all interest rates increased by 1.5 percentagepoints?Multiple ChoiceDecrease by $0.725 millionDecrease by $1.125 millionIncrease by $1.875 millionIncrease by $0.725 millionDecrease by $0.385 million

The interest rate keeping changing and the income of the bank depends on the interest rate and…

Answered: f a bank invested $75 million in a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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If the bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $60 million one-year liability paying 10 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates decreased by 2 percentage point?
An investment will pay $20,900 at the end of next year for an investment of $20,000 at the start of the year. If the bank offers an interest of 2.5% over the same period, what is the net value of the decision to proceed with the investment in terms of dollars today? Hint: The net value in terms of dollars today is the net value computed at time zero. -$500 + $500 -$400 +$390 +$400 -$390
Suppose that you have generated the estimates listed below from a pro forma analysis for a company that had requested a three year loan. The loan is a $1.5 million term loan with the equal annual payments of principals. The P&I payments are due at the end of each year with the annual interest rate = Prime rate + 1.5%. Yr.1 Yr. 2 Yr. 3 Capital expenditure 250,000 125,000 75,000 Cash dividends 140,000 140,000 140,000 Cash flow from operations before interest expense 750,000 780,000 800,000 Assuming the Prime rate = 7.5% each year. What will be the interest payment at year 3? a). 25,000 b). 50,000 c). 45,000 d). 53,000 e). 10,000
A company would like to have $400,000 in 6 years. How much should be invested semiannually into an account paying 3.6% compounded semiannually? 7. Identify the type of problem. a. Present Value with compound interest b. Future Value of an Annuity c. Present Value of an Annuity d. Amortization e. Sinking Fund 8. Answer the question in the problem. a. $30,681.38 b. $29,754.02. c. $34,245.54 d. $30,160.79 c. $28,541.46
If an initial investment of $1,000 is invested at 8% interest per year with semi-annual compounding, how much would be in the account after five years? A. $1,081.60 B. $1,061.66 C. $1,051.00 D. $1,281.60 The difference between the present and future worth of money at some time in the future is called A. Discount B. Deduction C. Inflation D. Depletion
Suppose the Omega Graphics Company wishes to set aside an equal, annual, end-of-year amount in a “sinking fund account” earning 8.5 percent per annum over the next six years. The firm wants to have $5 million in the account at the end of six years to retire (pay off ) $5 million in outstanding bonds. How much must be deposited in the account at the end of each year? Hint: Use the math formula.
assume that the average duration of first national bank's assets is four years, while the average duration of its liabilities is three years. Assuming that its assets equal its liabilities, then a 5 percentage point increase in interest rates will cause the net worth of first national to increase by ___% (put a negative sign if it is a decrease) of the total original asset value.
14. Suppose that you have generated the estimates listed below from a pro forma analysis for a company that had requested a three year loan. The loan is a $1.5 million term loan with the equal annual payments of principals. The P&I payments are due at the end of each year with the annual interest rate = Prime rate + 1.5%. Capital expenditure Cash dividends Cash flow from operations before interest expense a). b). c). Yr.1 250,000 140,000 750,000 Assuming the Prime rate = 7.5% each year. What will be the interest payment at year 3? 25,000 50,000 45,000 53,000 10,000 Yr. 2 125,000 140,000 780,000 Yr. 3 75,000 140,000 800,000
A company wants to deposit $500,000 per year in an investment which earns interest of10 percent per year compounded annually. Assume the first deposit is made at the end of the current year and additional deposits at the end of each following year. (a) To what sum will the investment grow at the time of the 10th deposit? (b) How much interest will be earned?
From Part A above, assume that the bank decided to give a loan of $ 59 million to Zenith Corporation (recorded for initial year). Zenith-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the Net Present Value (NPV) and the Profitability Index (PI) over the six years. Assume discount rate 13% This project does not end after the sixth year but instead will generate cash flows far into the future. Estimate the project’s terminal value, assuming that cash flows after year 6 continue at $8.25 per year perpetuity and then recalculate the investment’s NPV. Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.
Assuming that the average duration of First National Bank's $100 million assets is five years, while the average duration of its $80 million liabilities is three years, then a 5 percentage point increase in interest rates will cause the net worth of First National to increase by $ (put a negative sign if it is a decrease) million dollars.
A company borrowed $4,250,000 at an effective rate of 4.25% for 5 years. To make sure it has the money needed to repay the loan when it comes due, the company is making deposits into a sinking fund at the beginning of each quarter. The sinking fund pays the company 3.21%. (a) How much will the company need to have at maturity to pay off this loan? (b) How much should each sinking fund payment be?

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