8. Second Bank has the following balance sheet in millions of dollars, with the Basel risk weights given in parentheses. a. Does the bank have enough capital to meet the requirements as specified by Basel II? b. The bank wishes to keep its Tier 1 ratio at 5%. They will sell a portion of their consumer Toans and invest them in U.S. government bonds. How much consumer loans should they sell? U.S. Govt T-Bonds (o%) $100m Deposits $ 950m Govt. Agency FNMA Bonds (20%) $200m Subordinated Debt (Tier II) $ 1om University Dorm bonds (50%) $300m Preferred Stock (Tier II) $ 25m Consumer Loans AAA-rated (20%) $200m $ 15m Commercial Loans BBB-rated (100%) $200m Equity (Tier I) $1000m Total $100om

8. Second Bank has the following balance sheet in millions of dollars, with the Basel risk weights given in parentheses. a. Does the bank have enough capital to meet the requirements as specified by Basel II? b. The bank wishes to keep its Tier 1 ratio at 5%. They will sell a portion of their consumer Toans and invest them in U.S. government bonds. How much consumer loans should they sell? U.S. Govt T-Bonds (o%) $100m Deposits $ 950m Govt. Agency FNMA Bonds (20%) $200m Subordinated Debt (Tier II) $ 1om University Dorm bonds (50%) $300m Preferred Stock (Tier II) $ 25m Consumer Loans AAA-rated (20%) $200m $ 15m Commercial Loans BBB-rated (100%) $200m Equity (Tier I) $1000m Total $100om

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter18: Long-term Debt Financing

Section: Chapter Questions

Problem 12QA

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