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- 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.You are analyzing how interest rates affect the equity value of a bank using a duration analysis. After examining the balance sheet of the bank, you noticed that the value of its total assets and liabilities are $400M and $360M, respectively. You also determined that the duration gap of the bank is equal to 4.0 years. Using a duration analysis, you would like to predict the response of the bank’s equity value (in percentage terms) to a 0.1 percent increase in the market interest rate. You decided to assume that a one percentage point change in the rate is approximately equal to a one percent change in the rate. Following this approach, determine the percentage response of the bank’s equity to this change in the market interest rate. Group of answer choices -0.4% -4.0% 0.4% -3.6% -0.1%A bank has an average asset duration of 5 years and an average liability duration of 3 years.This bank has total assets of $500 million and total liabilities of $250 million. Currently,market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what isthis bank's change in net worth?6A. Net worth will decrease by $31.81 million.B. Net worth will increase by $31.81 million.C. Net worth will increase by $27.27 million.D. Net worth will decrease by $27.27 million.
- 1 If Net Income is $15,000 and Total Assets are $100,000, for every $1 in assets, how much net profit should the bank have? 2 If Net Income is $10,000 and Total Equity Capital (Bank Capital) is $40,000, for every $1 in equity what is the shareholder’s return?Suppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. Calculate the change in Bank A’s profit as a result of an increase in market interest rates of 2 percentage points.You are valuing a bank. The bank currently has assets of $320 per share. Five years from now (that is, at the end of five years), you expect their assets per share to be $460. After Year 5. you expect their assets per share to grow at 3.5 percent per year forever. The bank has an ROA of 1.6 percent and an ROE of 12.0 percent. The bank's cost of equity is 11.0 percent. What is the value of the bank's stock? Use the free cash flow to equity model to value this stock. Do not round intermediate calculations. Round your answer to the nearest cent.
- Suppose that a 1 percent increase in the (annual) interest rate leads to a 3.9 percent drop in the equity value of the bank. The ratio Debt/Assets=0.85 for this bank. Using a duration analysis, you estimated the effective duration gap for the bank implied by these numbers. You assumed that a one percent change in the rate is approximately the same as a one percentage point change in the rate. This implied duration gap is: Group of answer choices 0.59 years 3.32 years 0.17 years 2.73 years 4.59 yearsYou manage a bank that has $500 million of fixed-rate assets, $600 million of rate-sensitive assets, $1000 million of fixed-rate liabilities, and $100 million of rate-sensitive liabilities. A. Do a gap analysis and show what will happen to bank profits if interest rates rise by 4%. Show your work. B. What happens to the bank’s profits if interest rates fall by 7%?Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 50%…
- Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses: Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps.…Njenge Bank has the following balance sheet (in millions) with the risk weights in parentheses. Assets Liabilities and Equity Cash (0%) K20 Deposits K175 OECD Interbank deposits (20%) K25 Subordinated debt (2.5 years) K3 Mortgage loans (50%) K70 Cumulative preferred stock K5 Consumer loans (100%) K70 Equity K2 Total Assets K185 Total Liabilities & Equity K185 In addition, the bank has K30 million in performance-related standby letters of credit (SLCs), and K300 million in six-year interest rate swaps. Credit conversion factors follow: Performance-related standby LCs 50%…A bank has risk-weighted assets or $425 million and the following sources of regulatory capital (in $ millions): Allowance for Loan Losses $3.02 Common Stock (Par) $0.85 Intermediate-Term Preferred Stock $4.87 Perpetual Preferred Stock $3.43 Subordinated Debt $3.24 Surplus $7.83 Undivided Profit $20.04 What is the bank's ratio of Tier 2 capital to risk-weighted assets? _______ . Calculate the answer by read surrounding text. Express in %, to the nearest 0.01%; drop the % symbol.
