Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment.NIM=Profit/Interest revenueBank ALoan 7% $90G-Bond 5% ?Deposits 5% $70Equity $40Total Assets $?Total Equity and Deposit $110Given G-bond’s interest rate is 5%, Profit is equal to $4.9 $3.8 $4.0 $2.9 $3.1 $3.3 $20 $10

Bank purchase G bond 5% worth $ 20

Answered: Bank A receives $70 in deposits at 5%…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter11: Determining The Cost Of Capital

Section: Chapter Questions

Problem 16P

See similar textbooks

Similar questions

Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. NIM=Profit/Interest revenue Bank A Loan 7%                              $90 G-Bond   5%                             ? Deposits    5%                             $70 Equity                                           $40 Total Assets                       $? Total Equity and Deposit        $110 ROA= 2.5% 3.45% 1.5% 12.55% 2.9% 32.22% 28% 1.12%
Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. NIM=Profit/Interest revenue Bank A Loan 7%                              $90 G-Bond   5%                             ? Deposits    5%                             $70 Equity                                           $40 Total Assets                       $? Total Equity and Deposit        $110 ROE= 66.66% 22.3% 32.6% 4.8% 9.5% 10.4% 52.13% 8.8%
In the example below, we will use year-end assets. Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. NIM=Profit/Interest revenue Bank A Loan 7%                              $90 G-Bond   5%                             ? Deposits    5%                             $70 Equity                                           $40 Total Assets                       $? Total Equity and Deposit        $110 The amount of G-bond is $50 $70 $20 $40 $80 $60 $30 $10
Bank B, on the other hand, makes a $105 loan at 7%, with $100 in deposits at 5% and only $10 in equity. Bank B purchases the rest of Assets as G-Bond at 5% interest rate. Bank B Loan 7%                              $105 G-Bond 5%                                     ? Deposits    5%                             $100 Equity                                           $10 Total Assets                       $? Total Equity and Deposit        $110 If the maintenance cost of Loan is 0.1% pf the loan balance, that of G-Bond is 0.2% of the G-bond balance, and that of deposits is 0.5% of the deposit balance. The net income margin (minus maintenance costs) is 37% 19% 24% 26.1% 34.2% 22.3% 23% 11%
Bank B, on the other hand, makes a $105 loan at 7%, with $100 in deposits at 5% and only $10 in equity. Bank B purchases the rest of Assets as G-Bond at 5% interest rate. Bank B Loan 7%                              $105 G-Bond 5%                                     ? Deposits    5%                             $100 Equity                                           $10 Total Assets                       $? Total Equity and Deposit        $110 compute NIM of Bank B= 19% 5% 25% 17% 32% 26% 18% 34.2%
Bank B, on the other hand, makes a $105 loan at 7%, with $100 in deposits at 5% and only $10 in equity. Bank B purchases the rest of Assets as G-Bond at 5% interest rate. Bank B Loan 7%                              $105 G-Bond 5%                                     ? Deposits    5%                             $100 Equity                                           $10 Total Assets                       $? Total Equity and Deposit        $110 Compute ROA of Bank B, 5.62% 7.77% 2.36% 1.45% 3.88% 8.85% 4.56% 6.12%
Bank B, on the other hand, makes a $105 loan at 7%, with $100 in deposits at 5% and only $10 in equity. Bank B purchases the rest of Assets as G-Bond at 5% interest rate. Bank B Loan 7% $105 G-Bond 5% ? Deposits 5% $100 Equity $10 Total Assets $? Total Equity and Deposit $110 compute ROE of Bank B= 38% 14% 13% 21% 26% 15% 16% 14%
In the example below, we will use year-end assets. Bank A receives $70 in deposits at 5% and, together with 40 in equity, makes a loan of $90 at 7%. The remaining of assets is G-Bond. We will ignore taxes for the moment. Bank A Cash Reserves for Deposit ? Loan 7% $90 G-Bond 5% ? Deposits 5% $70 Equity $40 Total Assets $? Total Equity and Deposit $110 If Cash Reserves for deposit is at least 8% of the deposit under the Basel Accord, how much of the G-Bond Bank A should purchase? $17 $14 $16 $18 $20 $15 $19 $21
Eagle Bank has the following interest-sensitive assets and interest-sensitive liabilities. Amount maturing in Amount maturing in 30 days (million) 570 330 116 Interest-sensitive assets Loans Securities 30 days (million) 810 63 Interest rate on interest-sensitive assets is 5% Interest rate on interest-sensitive liabilities is 3% Interest-sensitive liabilities Savings deposits Time deposits Money market The interest rate is expected to rise 1% (for both interest-sensitive assets and liabilities) 30 days later. Will Eagle Bank benefit from the interest rate rise? Explain your answer. Show your calculations.
2. An investor borrows $2m from XYZ Bank at LIBOR-90 plus a quoted margin of 2%. If the LIBOR-90 effective for the 90-day loans equals 5%, the amount of interest that the investor will pay XYZ Bank is closest to: A. $140,000 B. $35,000 C. $65,000
Assume that ABC bank has $10 in deposits, with a required reserve ratio of 10% it is holding $3M in required reserve. There is a substantial withdrawal of $3M. Consider cost and customer service you are required to adjust the balance sheet after the withdrawal. The bank has no desire to borrow. List the new values for assets and liabilities after the withdrawal Assets Required Liabilities Deposits 3,000,000 10,000,000 reserve Loans Securities Total 20,000,000 12,000,000 35,000,000 Capital 25, 000,000 35,000,000
Use the following information about IGI security dealer. Market yields are in parenthesis, and amounts are in millions. Assets Liabilities and Equity Cash $10 Overnight Repos $170 1 month T-bills (7.05%) 75 Subordinated debt 3 month T-bills (7.25%) 75 7-year fixed rate (8.55% 150 2 year T-notes (7.50%) 50 8 year T-notes (8.96%) 100 5 year munis (floating rate) (8.20% reset every 6 months) 25 Equity 15…

SEE MORE QUESTIONS

Recommended textbooks for you

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

SEE MORE TEXTBOOKS