4. Gap and Duration AnalysisTake the following balance sheet, which of the assets and labilities are rate-sensitive?Which assets and liabilities are not?a.AssetsValueLiabilitiesValueCheckable DepositsSavings DepositsMoney MarketAccounts40Long-Term LoansLong-Term Securities7526100Reserves5410Variable Rate CDs25Short-Term SecuritiesVariable-rate Loans1530Long-Term CDs25b. What is the estimated rate of change of bank profit, in terms of next year'sinterest rate, conditional on this year's interest rate being 2%?c. Suppose that all the long-term securities that the bank holds mature in 4years and their interest rate will be 5% in that year. What is the approximatemarket-value of these long-term securities in 4 years given this year's interest rate is 2%?

GIVEN Gap and Duration Analysis is

Answered: 4. Gap and Duration Analysis a. Take…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The nominal interest rate is adjusted based on _______ from the real interest rate. A. government controls B. inflation C. income growth D. exchange rate movements
1. In a spiderplot, the most sensitive factor is the one with: a. the highest Y-intercept value b. the highest X-intercept value c. the most positive slope value. d. the highest absolute slope value 2. Equivalence of cash flows is NOT affected by: a. Timing of the cash flow b. Magnitude of the cash flow c. Interest rate. d. Point of view used 3. A Php 1,000,000 loan has a nominal interest rate of 10% per year compounded. quarterly. If this amount is to be paid oft quarterly over 5 years, how much will be the monthly amount due? a. 1,000,000 (A/P, 10%, 5) b. 1,000,000 (A/P, 2.5%, 20) c. 1,000,000 (A/P, 3.33%, 20) d. 1,000,000 (A/P, 5%, 20) 4. A bank advertises mortgages at an interest rate of 2% per month. What is the effective annual interest rate? Select the closest value. a. 1% b. 13% c. 24% d. 27% 5. Which of the following is the most useful if we want to measure the effect of uncertainty in parameter estimates? a. Sensitivity Analysis b. Basic Economic Study Methods c. Payback…
What-if forecasting provides information regarding how much net interest income changes when interest rates are assumed to increase/decrease by various amounts. Select one: True False
A bank wants to implement a loan pricing model and has to look at several variables to consider. Please select the variable that is incorrectly described. a. A profit margin to provide the bank with an adequate return on capital. b. Risk premium to counter the effect of default risk. c. Cost of funding that include the cost of bonds issued. d. Operating costs that include the cost of interest paid to depositors.
Which of the following are issued by large commercial banks that can be bought and sold among investors and carry a fixed interest rate? a. Eurodollar CD O b. Certificate of Deposits c. Commercial Papers d. Treasury Bills
TRUE OR FALSE 1. Short-term assets can always be financed with short-term debt, and long-term assets can be financed with long-term debt and equity, in an ideal economy. 2. Security for short-term or long-term loans usually consists of accounts receivable, inventories, or both.
One of the following statement is true about strategies of liquidity management Select one: O a. Asset Liquidity Management or Asset Conversion Strategy. This strategy calls for storing liquidity in the form of illiquid assets (T-bills, fed funds loans, CDs, etc.) and selling them when liquidity is needed b. Borrowed Liquidity or Liability Management Strategy. This strategy calls for the bank to purchase or borrow from the money market to cover all of its liquidity needs Balanced Liquidity Strategy. The C. use of liquid asset holdings (Asset Management) O d. No need to follow any strategy for liquidity management
Suppose XYZ Bank reports interest-sensitive assets of $670 million and interest-sensitive liabilities of $875 million. What is the bank’s dollar interest-sensitive gap? Its relative interest-sensitive gap and interest-sensitivity ratio?
Please help with the below minicase. Directions: The best way to do this case is to use relevant credit information and calculate some financial ratios: ROA, debt ratio, liquidity ratios, ROE, profit margin, Inventory and Asset turnover. Then look at breakeven point probability, and finally the possibility of a repeat order. What can you say about Miami Spice’s creditworthiness? What is the break-even probability of default? How is it affected by the delay before MS pays its bills? How should George Stamper’s decision be affected by the possibility of repeat orders? MiniCase: George Stamper a credit analyst with Micro-Encapsulators Corp. (MEC) needs to respond to an urgent email request from the southeast sales office. The local sales manager reported that she had an opportunity to clinch an order from Miami Spice (MS) for 50 encapulators at $10,000 each She added that she was particularly keen to secure this order since MS was likely to have a continuing need for 50 encapulators a…
What is not an advantage of a Treasury (T) Note? Select one: a. Extremely liquid security. b. Loss of potential purchasing power (inflation > yield). c. An investor’s capital is secure. d. Better returns than a bank savings account.
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Describe payday loans, tax-refund advances and structured-settlement advances—the differences between these financing products and the concerns that are associated with similar short-term loan products. Specifically, explain the effect these can have on your future cashflow.

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