41. After conducting a rate-sensitive analysis, a bank finds itself with the followingamounts of rate-sensitive assets and liabilities (RSAS and RSL) and fixed-rate assetsand liabilities (FRAs and FRLs); the rate of return and cost rates on the accounts arealso given:AssetsRSAS @ 4.25%FRAS @ 5.15%NEATotalAmount(Million $)S 322S 700S 120$1,142Liabilities& EquityRSLS @ 3.11%FRLS @ 4.95%EquityTotalIf the bank wishes to set up a swap to totally hedge the interest rate risk, the bankshouldA. pay a variable rate of interest and receive a fixed rate ofinterest.B. pay a fixed rate of interest and receive a variable rate ofinterest.Amount(Million $)S 200$ 800S 142$1,142C. pay a variable rate of interest and receive a variable rateof interest.D. pay a fixed rate of interest and receive a fixed rate ofinterest.

Let us calculate the difference between what the bank pays and receives with its existing balance…

If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should A. pay a variable rate of interest and receive a fixed rate of interest. B. pay a fixed rate of interest and receive a variable rate of interest. C. pay a variable rate of interest and receive a variable rate of interest. D. pay a fixed rate of interest and receive a fixed rate of interest.

If the bank wishes to set up a swap to totally hedge the interest rate risk, the bank should A. pay a variable rate of interest and receive a fixed rate of interest. B. pay a fixed rate of interest and receive a variable rate of interest. C. pay a variable rate of interest and receive a variable rate of interest. D. pay a fixed rate of interest and receive a fixed rate of interest.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following bank balance sheet and the associated yields for earning assets and costs of liabilities. Assets Amount (000). Rate cash 400. 0% securitie 1600. 6.5% commercial loans 4000 9.0% credit card loans 3300. 10.0% loss reserves. 200 other assets 500 total assets. 10,000 Liabilities and equity Demand deposits. 1600 MMDAs. 3600 6.0% CDs. 2600 6.5% ST deposits. 1360. 5.0% Deferret tax credit. 200 Equity 640 total. 10000 Assume that net charge-offs $44,000 cash taxes paid $78,000 and allocated risk capital is $550,000 with a capital charge of 6 percent. determine : a) Calculate and show the bank income statement.
Question Consider the following balance sheet positions for a financial institution:• Rate-sensitive assets = $120 million; Rate-sensitive liabilities = $180 million.• Rate-sensitive assets = $230 million; Rate-sensitive liabilities = $200 million.a) Calculate the repricing gap and the impact on net interest income of a 2 percent increase in interest rates for each position. b) Calculate the repricing gap and the impact on net interest income of a 2 percent decrease in interest rates for each position.c) Explain the type of risk this FI is exposed to in each position.
Question Consider the following balance sheet positions for a financial institution:• Rate-sensitive assets = $120 million; Rate-sensitive liabilities = $180 million.• Rate-sensitive assets = $230 million; Rate-sensitive liabilities = $200 million.a) Calculate the repricing gap and the impact on net interest income of a 2 percent increase in interest rates for each position. b) Calculate the repricing gap and the impact on net interest income of a 2 percent decrease in interest rates for each position.c) Explain the type of risk this FI is exposed to in each position. Kindly explain in detail
1.Consider the following repricing buckets: Repricing bucket Assets Liabilities 1 day $150,000 $240,000 1 day to 3 months $200,000 $140,000 3 to 6 months $200,000 $200,000 6 to 12 months $500,000 $160,000 1 to 5 years $150,000 $260,000 Over 5 years $50,000 $200,000 What is the annualised change in the bank’s future net interest income if the average rate change for assets and liabilities that can be repriced within one year is an increase of 0.5%? Round your final answer to 2 decimal places. E.g. if the final answer is $583.117 please type 583.12 in the answer box (do not type the dollar sign). 2.Key financial data and ratios are reported in the table below for ABC bank and for its competitor, DEF bank: Ratio ABC Bank DEF Bank Profit margin 6% 8% ROA 16%…
Given Bank A's Statement of Condition and Statement of Earnings, answer the next two questions: If the average net interest margin for this type of bank is 4.65 percent, then, ceteris paribus, this particular bank is performing
If a bank has gross charge-offs of $25 for the current year, recoveries of $40, and provision for loan losses of $30, how much will the reserve for loan losses change? a. $45 b. $+15 c. none of the above. d. $-15
Suppose that the assets of a bank consist of $100 million of loans of BBB-rated corporations. The PD for the corporations is estimated as 1%. The average maturity is five years and the LGD is 60%. What is the total risk-weighted assets for credit risk under the Basel II advanced IRB approach? Question 5Answer a. $178.1 million b. $13.2 million c. $165.4 million d. $100 million
A security analyst calculates the following ratios for two banks. How should the analyst evaluate the financial health of the two banks.Bank A Bank BROE 22% 24%ROA 2% 1.5%Equity Multiplier 11X 16XProfit Margin 15% 14%Asset Utilization 13% 11%Spread 3% 3%Interest Exp. Ratio 35% 40%Provision for loan loss ratio 1% 4%
Consider a bank with the following balance sheet (Shown in image):a) Calculate the equity (total asset – total liability) to asset ratio of the bank(Hint: equity to asset ratio = total equity/total asset) b) Calculate the duration and convexity of the both asset and liability sides; c) If the interest rates go up by 1%, using the duration and convexity rule to determine the networth of the bank and the equity to asset ratio; d) In c)’s 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? e) Do you agree with the following statement? Explain why. “The information about a bond’s duration and convexity adjustment is sufficient to quantifyinterest rate risk exposure.”
A bank's duration gap is 1.92, and the current interest rate used to value all of the bank's assets and liabilities is 5.2%. What is the change in the bank's net worth (in % of TA) if the interest rate changes to 8%?
Suppose the Royal Bank of Pullman has the following assets: cash = 100 (with modified duration of 0) and a 10-year loan worth $900 (with modified duration of 9). Its liabilities are a CD worth $800 (with a modified duration of 2). If interest rates rise by 1% the bank's equity will fall by ________ %. A. 9 B. 5.6 C. 2 D. 6.5
2. Consider the case that a bank borrows funds at 7% for 2 years and lends them at 9% per annum. At the end of year 1, this bank can be viewed as: a) “short-funded” and exposed to reinvestment risk b) “long-funded” and exposed to refinancing riskc) “short-funded” and exposed to refinancing risk d) “long-funded” and exposed to reinvestment risk

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