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- Suppose that $1,000 is deposited each year for five years into an equity (common stock) account earning 8% per year. During this period, general inflation is expected to remain at 3% per year. At the end of five years, what is the dollar value of the account in terms of today’s purchasing power (i.e., real dollars)?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.Assume the Central Intelligence Agency's World Fact Book reported that Afghanistan had a GDP of $78.557 billion with a projected growth rate of 2.8%. Assume that the growth rate continues for 5 years, 10 years, and 20 years. Calculate the GDP for Afghanistan for each of these time periods.
- Fourteen years ago, the U.S. Aluminum Corporation borrowed $6.5 million. Since then, cumulative inflation has been 98 percent (a compound rate of approximately 65 percent per year). a. When the firm repays the original $6.5 million loan this year, what will be the effective purchasing power of the $6.5 million? (Hint: Divide the loan amount by one plus cumulative inflation.) b. To maintain the original $6.5 million purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) c. If the lender knows he will receive $6.5 million in payment after 14 years, how might he be compensated for the loss in purchasing power? A descriptive answer is acceptable.The government received a loan of 7 million monetary units at 10% per year (expenditure). These funds will be used to finance the project, which will annually bring a GDP increase of 1.4 million monetary units (revenue). How many years will it take the country to pay the debt? Take in consideration, that in system of national accounts expenditure and revenue must be equal. Find solution using the equation where x – quantity of years. (I need to write an equation and use it to calculate the number of years)World Bank data on a developing country shows per capita incomes of $4,500 for urban residents and $3,200 for rural residents. Migration from rural to urban areas has slowed the growth of urban incomes to a 3.0% average annual rate while rural per capita incomes grew 4.5% annually. If the historic growth rates continue into the future, how many years will it take for incomes to equalize? Number of Years:
- The rule of 72 is a handy rule for estimating how long it takes money to double with annual compounding. If r is the annual interest rate(expressed as a decimal then the doubling time is approximately 72/(100r) years. If you express the interest rate as R percent then the doubling time is approximately 72/R years. a. Calculate the balance at the end of the predicted doubling time for each $1000 with annual compounding for the small growth rates of 3 percent, 4 percent and 6 percent.An investment of $185,575 is expected to generate returns of $65,000 per year for each of the next four years. What is the investment’s internal rate of return? Below is a table for the present value of $1 at compound interest. Year 6% 10% 12% 15% 1 0.943 0.909 0.893 0.870 2 0.890 0.826 0.797 0.756 3 0.840 0.751 0.712 0.658 4 0.792 0.683 0.636 0.572 5 0.747 0.621 0.567 0.497 Below is a table for the present value of an annuity of $1 at compound interest. Year 6% 10% 12% 15% 1 0.943 0.909 0.893 0.870 2 1.833 1.736 1.690 1.626 3 2.673 2.487 2.402 2.283 4 3.465 3.170 3.037 2.855 5 4.212 3.791 3.605 3.353 fill in the blank 1 %First National Bank is doing some scenario analysis. It believes that its source of funds (the Federal Reserve) will soon increase the cost of loans. In fact, the cost of making loans is expected to change from the current 2 percent interest to either 3 percent or 4 percent interest in the next year. There will be no change in its $2,000,000 income at the 2 percent interest level, but net income will fall to $1,000,000 if interest rates increase to 3 percent and decrease to $100,000 if the interest rates increase to 4 percent . Finally, National predicts a 10 percent probability of a decrease to 2 percent interest rate, a 50 percent probability of a 3 percent interest rate, and a 40 percent probability of an increase to 4 percent interest rate.
- Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rates next year would lead to the bank's return on equity being reduced to zero. Assume that the bank is subject to a tax rate of 30%.1. The current market rate of interest is 8 percent. At that rate of interest, businesses borrow $500 billion per year for investment and consumers borrow $100 billion per year to finance purchases. The government is currently borrowing $100 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $200 billion per year.b. Show the impact on the market rate of interest, assuming that taxpayers do not anticipate any future tax increases.c. How would your conclusion differ if taxpayers fully anticipate future tax increases?Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work. ( How a commercial bank’s value would be affected by an increase in economic growth?
