wing information to answer the question: First National Bank of Beverly Hills (Millions $) Interest rate Assets Liab. & Equity Amount of return Amount Interest Cost Securities 325 3.0% Liabilities $1,175 2.5% Loans 925 8.0% Equity 125 Non-earning 50 0.0% Total $1,300 Total $1,300 First National Bank Industry Average Net interest margin (NIM) Return on Equity (ROE) 2096 4.00% Tax rate 3496 Overhead Efficiency 0.65 Noninterest Expense Provisions for Loan Losses (PPL) $40 Average Loan Rate (ALR) 9% $3 If the net noninterest income were to change to -$20, what would the average loan rate (ALR) have to be to generate a 20% ROE? Compared to the industry, does this ALR appear feasible? O 6.25%, feasible O 6.25%, not feasible O 8.70%, feasible O 8.70%, not feasible O 7.50%, feasible

wing information to answer the question: First National Bank of Beverly Hills (Millions $) Interest rate Assets Liab. & Equity Amount of return Amount Interest Cost Securities 325 3.0% Liabilities $1,175 2.5% Loans 925 8.0% Equity 125 Non-earning 50 0.0% Total $1,300 Total $1,300 First National Bank Industry Average Net interest margin (NIM) Return on Equity (ROE) 2096 4.00% Tax rate 3496 Overhead Efficiency 0.65 Noninterest Expense Provisions for Loan Losses (PPL) $40 Average Loan Rate (ALR) 9% $3 If the net noninterest income were to change to -$20, what would the average loan rate (ALR) have to be to generate a 20% ROE? Compared to the industry, does this ALR appear feasible? O 6.25%, feasible O 6.25%, not feasible O 8.70%, feasible O 8.70%, not feasible O 7.50%, feasible

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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Calculate the amount of liquidity a bank can generate from selling its AFS portfolio using the following information:USTs held in AFS = $92,053,000Securities held in HTM = $13,500,000Loans = $69,680,000Settlement occurs on T+2Maturing on T+1 = $16,000,000Haircut = 5%USTs in AFS used as collateral for RP liabilities (i.e./ "encumbered") = $19,740,000 $56,313,000 $53,497,350 $52,697,350 $51,710,350
Assume a bank has the following balance sheet. Determine the 2-year GAP. AssetAmount LiabilityAmountCash$100 90-day CDs$1006-month Gbonds$400 360-day CDs$200 2-yearcommercialloans$400 Time Deposits 2- year $900 5-year fixedrate loans$500 Stockholder’s equity$200 Total$1,400 Total$1,400 GAP = (RSA2 yr – RSL2 yr) 0 -$100 -$200 -$300 -$800
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.
Nienge Bank has the following balance sheet (in millions) with the risk weights in parentheses.AssetsCashOECD Interbank depositsK3Mortgage loansConsumer loansTotal Assets(0%) K20(20%) K25liabilities and EquityDepositsSubordinated debt (2.5 years)K175(50%) K70(100% K70K185Cumulative preferred stockEquityTotal Liabilities & EquityK5K2K185In 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 LCs50%1-5 year foreign exchange contracts5%1-5 year interest rate swaps0.5%5-10 year interest rate swaps1.5%d.Discuss the major shortcomings of the Basle I accord.
Consider the following Balance Sheet for Forward Thinking Commercial Bank(FTCB) (in millions) ASSETS LIABILITIES Floating rate mortgages 250 Demand deposits 300 (currently 14% annually) (currently 5% annually) 30 years fixed rate loans 1 year CD 50 (currently 9% annually) 120 (currently 8% annually) Equity 20 370 370 a. What is FTCB expected net interest income (NII) at year end? b. What is FTCB expected net interest income at year end if interest rates fell by seven percent (7%). c. What is FTCB expected net interest income at year end if interest rates grew by 300 basis points on assets, but decline by 2% on liabilities.
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.
Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.56212.02612yr bond bought at a yield of 4% (lending money) $800M 9.45353.565 Liabilities Value Duration of the Liability Convexity of the Liability2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.3844yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio 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?
Consider a bank with the following balance sheet (M means million):Assets Value Duration of the Asset Convexity of the Asset5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.02612yr 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
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 Liability2yr 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 duration and convexity of the both asset and liability sides;
) Prince Edward Bank considers increasing a type of loans in the credit portfolio by $3,500,000,which will generate a gross income of 2.5%p.a. The bank assumes PD is 10% and estimates LGDis 20% and EAD as 80%. The net income, which is gross income minus Expected Loss (i.e. EL),will be used in the RAROC analysis. When doing so, the Bank refers to the net income andunexpected loss (i.e. UL) as the capital-as-risk estimation.Required:If the ROE of Prince Edward Bank is targeted at 25%, analyze whether the loans could be addedto the portfolio by RARoC analysis
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 Calculate the duration and convexity of the both asset and liability sides; If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; 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…
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 In the scenario "If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio", 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?

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