Consider two local banks. Bank A has 77 loans outstanding, each for $0.8 million, that it expects will be repaid today.Each loan has a 3% probability of default, in which case the bank is not repaid anything. The chance of default isindependent across all the loans. Bank B has only one loan of $61.6 million outstanding, which it also expects will berepaid today. It also has a 3% probability of not being repaid. Calculate:a. The expected payoff of Bank A.b. The expected payoff of Bank B.c. The standard deviation of the overall payoff of Bank A.d. The standard deviation of the overall payoff of Bank B.a. The expected payoff of Bank A.The expected payoff of Bank A is $million. (Round to two decimal places.)

a. The expected payoff of Bank AThe expected payoff for a single loan for Bank A can be calculated…

Answered: Consider two local banks. Bank A has 77…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Consider two local banks. Bank A has 92 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 3% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $92 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Calculate the following: The expected payoff of Bank A. The expected payoff of Bank B. The standard deviation of the overall payoff of Bank A. The standard deviation of the overall payoff of Bank B.
a bank has a commercial loan portfolio of $50 million dollars. based on historic trend analysis it estimatesthat 50% of outstanding principal is not paid back. the bank determines 7% is the optimal interest rate tocharge on consumer loans. Based on the optimal interest rate and the estimate for loan losses what willcharge on its commercial loans to offset its expected loan losses? show your answer to four decimalplaces in a numeric format (if answer is 9.75% enter is .0975).
The banking system has $8,000 in reserve, $22,000 in loans, and $30,000 in deposits. If the reserve requirement is 10%. What is the maximum amount of loans the banking system could make? A: If the Fed lowers reserve requirement to 5%, the banking system converts all excess reserves to loans, but borrowers return only 50% of these funds to the banking system as deposits. What is the maximum amount of loans the banking system could make? B: If the Fed lowers reserve requirement to 5%, the banking system converts 75% excess reserves to loans, but borrowers return only 60% of these funds to the banking system as deposits. What is the maximum amount of loans the banking system could make?
ZLX is seeking a bank to place short-term deposits at a good rate. Bank A is offering 3.5% APR compounded daily, while Bank B is offering an effective annual rate of 3.54%. Which bank should ZLX select? A) Bank A B) Bank B C) ZLX is indifferent because the rates are equivalent
A bank has made a 3-year $10 million dollar loan that pays annual interest of 8%. The principal is due at the end of the third year. A. The bank is willing to sell this loan with recourse at 8.5% discount rate. What should it expect for selling this loan? B. It also has the option of selling this loan without recourse at a discount rate of 8.75%. What should it expect for selling this loan? C. If the bank expects a ½% probability of default on this loan, is it better off selling this loan with or without recourse? It expects to receive no interest payments or principal if the loan is defaulted. D. Why do you think that the interest rate in part A is different from the interest rate in part B?
The Tropical State Bank has $1,000 in total assets (all of which are earning assets), $700 of which will be repriced within the next 90 days. This bank also has $800 in total liabilities, $400 of which will be repriced within the next 90 days. Currently, the bank is earning 8 percent on its assets and is paying 5 percent on its liabilities. If interest rates do not change in the next 90 days, what is this bank's net interest margin? 8 percent 5 percent 4 percent 4 percent The Tropical State Bank has $1,000 in total assets (all of which are earning assets), $700 of which will be repriced within the next 90 days. This bank also has $800 in total liabilities, $400 of which will be repriced within the next 90 days. Currently, the bank is earning 8 percent on its assets and is paying 5 percent on its liabilities. If interest rates on both assets and liabilities rise by 2 percent in the next 90 days, what would be the bank's net interest margin? 4 percent 4 percent 6 percent 4 percent…
An investor has accumulated $6,800 and is looking for the best rate of return that can be earned over the next year. A bank savings account will pay 5%. A one-year bank certificate of deposit will pay 7%, but the minimum investment is $9,800. Required: Calculate the amount of return the investor would earn if the $6,800 were invested for one year at 5%. Calculate the net amount of return the investor would earn if $3,000 were borrowed at a cost of 15%, and then $9,800 were invested for one year at 7%. Calculate the net rate of return on the investment of $6,800 if the investor accepts the strategy of part b. Note: Round your answer to 2 decimal places.
A corporate customer obtains a $2 million loan from a bank. The annual spread between the interest rate of this loan and the bank’s cost of fund is 6%, and this bank charges an annual fee of 2.8%. The expected probability of default of this borrower is 9.6%, and the loss given default is 30.7%. Calculate the expected return on this loan based on Moody’s analytics portfolio manager model. Round your answer up to 4 decimal places in decimal term, i.e., enter 0.1234 instead of 12.34%.
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Bank of Canada buys a government bond worth $750,000 from Eric, a client of First Main Street Bank. He deposits the money into his chequing account at First Main Street Bank. NOTE: the options for the LEFT dropdown question for ASSETS are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for ASSETS are ($150,000 or $600,000 or $750,000 or $1,800,000) the options for the LEFT dropdown question for LIABILITIES are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for LIABILITIES are ($150,000 or $600,000 or $750,000 or $1,800,000) the VERY last dropdown question at the bottom choices are ($375,000 or $3,000,000 or $3,750,000)
evergreen credit corp wants to earn an effective annual return on its consumer loans of 18.2 percent per year. The bank uses daily compounding on its loans. What interest rate is the bank required by law to report to potenetial borrowers? Explain why this rate is misleading to an uninformed borrower.
Barcain Credit Corporation wants to earn an effective annual return on its consumer loans of 16 percent per year. The bank uses daily compounding on its loans what interest rate is the bank required by law to report to potential borrowers? Explain why this rate is misleading to an uninformed borrower.
A bank has estimated its expected (predicted) loan loss rate on its consumer loans at 3.25%. If the bank wishes to earn 8% on it consumer loans, what rate should it charge its customers? 11.34% 11.63% 4.60% 4.35% A lender engages in a 15-day $1,000,000 reverse repo at a rate of 2.50%. The haircut is 2%. The current market value of the loan is $980,000. What rate of return did the lender earn on annualized basis? Use 360-day for annualization. $1,000.42 $810.63 $466.86 $880.37 The following is not an example of a closed-end loan Automobile Loans Home mortgages Recreational vehicle loan Credit Card Core deposits of a commercial bank consist of the following except: Demand deposits Savings deposits Money…

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS