Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 14P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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![9.
A bank has two, 3-year commercial loans with a present
value of $70 million. The first is a $30 million loan that
requires a single payment of $37.8 million in 3 years,
with no other payments until then. The second is for
$40 million. It requires an annual interest payment of
$3.6 million. The principal of
$40 million is due in 3 years.
a. What is the duration of the bank's commercial loan
portfolio?
b. What will happen to the value of its portfolio if the
general level of interest rates increased from 8% to
8.5%?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe6e6b4f5-2332-497f-aff4-a7505529b037%2F77ea0ad9-e511-4362-bdb2-cfcc56db17be%2Fdrrdx8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:9.
A bank has two, 3-year commercial loans with a present
value of $70 million. The first is a $30 million loan that
requires a single payment of $37.8 million in 3 years,
with no other payments until then. The second is for
$40 million. It requires an annual interest payment of
$3.6 million. The principal of
$40 million is due in 3 years.
a. What is the duration of the bank's commercial loan
portfolio?
b. What will happen to the value of its portfolio if the
general level of interest rates increased from 8% to
8.5%?
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