Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4%(lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4%(lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4%(borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8%(borrowing money) $500M 3.759 8.206 Calculate the equity (total asset – total liability) to asset ratio of the bank
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4%(lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4%(lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4%(borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8%(borrowing money) $500M 3.759 8.206 Calculate the equity (total asset – total liability) to asset ratio of the bank
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 18MCQ
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Question
Consider a bank with the following balance sheet (M means million):
Assets |
Value |
Duration of the Asset |
Convexity of the Asset |
5yr bond bought at a yield of 3.4%(lending money) |
$550M |
4.562
|
12.026 |
12yr bond bought at a yield of 4%(lending money) |
$800M |
9.453
|
53.565
|
Liabilities |
Value |
Duration of the Liability |
Convexity of the Liability |
2yr bond sold at a yield of 2.4%(borrowing money) |
$300M |
1.941 |
2.384 |
4yr bond sold at a yield of 2.8%(borrowing money) |
$500M |
3.759 |
8.206 |
Calculate the equity (total asset – total liability) to asset ratio of the bank
Expert Solution
Step 1
The equity to assets ratio is a ratio that tells that how much company is financed with equity capital.
Step 2
The computation of the equity to assets ratio is as follows:
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