If the bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $60 million one-year liability paying 10 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates decreased by 2 percentage point?

If the bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $60 million one-year liability paying 10 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates decreased by 2 percentage point?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

If Bergen Air Systems takes out a $100,000 loan, with eight equal principal payments due over the next eight years, how much will be accounted for as a current portion of a noncurrent note payable each year?
The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
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%.
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 that the average duration of first national bank's assets is four years, while the average duration of its liabilities is three years. Assuming that its assets equal its liabilities, 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) of the total original asset value.
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.
A company expects EBIT of 200000 every year into perpetuity. The firm currently has no debt, but it can borrow at 10% per annum. The company's cost of equity is 25% and the company is subject to a corporate tax rat of 35%. If the company borrows 200,000 and uses the proceeds to repurchase equity, the value of the company would be:
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.