City bank Swiss Bank Fix rate 4% 5% Floating rate L+2% L+4% L=1.5% today Which Bank has an absolute Adv.?( Which Market) Which Bank has a relative Adv?
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- XYZ Bank has the following Balance sheet: K’M K’million Cash 20 Demand Deposits 100 15-yr, 10% Loan 160 5-yr, 6% CD Balloon 210 30-yr, 8% Bond 300 20-yr, 7% Debenture 120 Total Assets 480 Equity 50 Total Liabilities and Equity. 480 What is the Maturity Gap?Dont use Al or CHATGPT. You are examining the pricing of banks by the market. The current return on equity, based on aggregate net income and book equity, is 13.5% and the cost of equity for banks is 10%. Collectively, banks are in stable growth, growing 2.5% year. Banks are trading at a discount of 10% on book value (i.e., PVB = 0.9) and you believe that the main reason for the discount is that investors are expecting capital requirements to be increased for banks. If the net income, cost of equity and expected growth rate remain unchanged, estimate how much of a capital increase, investors are expecting for banks in percentage terms? A. % 35.14 B. % 45.94C. % 51.23 D. % 58.25(a) A bank has an ROA of 1% and an ROE of 9%. What is the equity multiplier for the bank? (b) A bank has an ROA of 1% and an equity multiplier of 9. What is the ROE for the bank?
- Consider a bank with return on assets of .15 or 15%. The equity multiplier for this bank is 1.333. What is the return on equity of this bank?Consider a bank with the following balance sheet (M means million): (Image attached as Q3) If the interest rates go up by 1%, using the duration and convexity rule, determine the net worth of the bank and the equity to asset ratio. ALSO In above scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise?A bank with $10,000 in assets has ROA =2% and ROE - 10%. What is its leverage ratio (TA/Equity)? A 2.5 B 5 C 4 D 1.25
- Consider a bank with the following balance sheet (M means million): (Image attached as Q3) If the interest rates go up by 1%, using the duration and convexity rule, determine the net worth of the bank and the equity to asset ratio. ALSO In above scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise? Attempted to create formula for first part - is it correct?a)Assume that the following data is extracted from the financial statements of Richy-Rich bank: equity is $350 million, interest expense is $115 million, provision for loan loss (P) is $35 million, noninterest income is $30 million, noninterest expense is $50 million and a tax rate is 33%. What is the minimum total interest income required to give a return on equity (ROE) of 20%? Show workings when necessary. b) Be-smart Bank reported an equity multipler ratio of 6.5 at the end of year 2021. If the bank’s total debt at the end of year 2021 was $5 million, how much of its assets were financed with equity? Show calculations when necessary. c) What are the main sources of funding for commercial banks? Using bullet points, classify these sources and briefly describe each category.Suppose that the Tier 1 equity ratio for a bank is 6%. What is the maximum dividend, as a percent of earnings, that can be paid if (a) there is no countercyclical buffer and (b) there is a 2.5% countercyclical buffer?
- 3. Company WACC is 20%. Debt interest rate is 4% and D/ E ratio is 1,6. What is the cost of equity? HOW YOU CALCULATE THIS WITH EXCEL AND USING EXCEL FORMULAS?Question 8 Assume that the following banks have the same net amount of 2 million, but they are different due to the capital structure: Bank Alpha Reserves 12 million Deposits 85 million Loans 90 million Bank Capital 17 million TOTAL Assets 102 million TOTAL Liabilities and Equity 102 million Bank Beta Reserves 12 million Deposits 100 million Loans 90 million Bank Capital 2 million TOTAL Assets 102 million TOTAL Liabilities and Equity 102 million Which Bank is more attractive for shareholders? [Hints: Calculate the ROE]QUESTION #2 Populate the following “T-accounts” with the following data $100 million in mortgage-backed securities (MBS) $200 million demand deposits $20 million in reserves held by banks $100 million in Treasury securities held by banks $50 million in Treasury securities held by the Fed $5 million in overnight borrowing by banks from the Fed Imagine that households buy $3million worth of cars from firms. Show how the balance sheet of households and firms change, as well as any changes on the balance sheets of the banking sector or anywhere else (you don’t need to include the Treasury balance sheet here). Households Banks Federal Reserve Firms ___A_______L___ ___A_______L___ ___A_____L___ ___A_____L___