The following financial statement is for the current year. From the past, you know that 10% of fixed- rate mortgages prepay each year. You also estimate that 10% of checkable deposits and 20% of savings accounts are rate sensitive. Second National Bank Assets Liabilities ¢ 1,500,000 € 15,000,000 C 5,500,000 C 8,000,000 Reserves Checkable Deposits Securities Money Market Deposits Savings Accounts <1 Year 1 to 2 Years ¢ 6,000,000 C 8,000,000 C 12,000,000 CDs € 15,000,000 € 22,000,000 >2 years Variables-rate Residential Mortgages <1 Year C 7,000,000 ¢ 13,000,000 I to 2 Years > 2 years € 5,000,000 ¢ 2,500,000 € 5,000,000 Variables-rate Fixed-rate Commercial Loans Fed Funds C 1,500,000 € 18,500,000 € 30,000,000 ¢ 2,500,000 <1 Year I to 2 Years Borrowings <1 Year I to 2 Years C 12,000,000 ¢ 3,000,000 ¢ 2,000,000 ¢ 5,000,000 >2 years >2 years Bank Capital Buildings, etc. Total C100,000,000 Total C100,000,000 a. What is the current Income GAP for Second National Bank? What will happen to the bank’s current net interest income if rates fall by 75 basis points? b. What special assumptions do income and duration gap analyses make about interest rate changes

The following financial statement is for the current year. From the past, you know that 10% of fixed- rate mortgages prepay each year. You also estimate that 10% of checkable deposits and 20% of savings accounts are rate sensitive. Second National Bank Assets Liabilities ¢ 1,500,000 € 15,000,000 C 5,500,000 C 8,000,000 Reserves Checkable Deposits Securities Money Market Deposits Savings Accounts <1 Year 1 to 2 Years ¢ 6,000,000 C 8,000,000 C 12,000,000 CDs € 15,000,000 € 22,000,000 >2 years Variables-rate Residential Mortgages <1 Year C 7,000,000 ¢ 13,000,000 I to 2 Years > 2 years € 5,000,000 ¢ 2,500,000 € 5,000,000 Variables-rate Fixed-rate Commercial Loans Fed Funds C 1,500,000 € 18,500,000 € 30,000,000 ¢ 2,500,000 <1 Year I to 2 Years Borrowings <1 Year I to 2 Years C 12,000,000 ¢ 3,000,000 ¢ 2,000,000 ¢ 5,000,000 >2 years >2 years Bank Capital Buildings, etc. Total C100,000,000 Total C100,000,000 a. What is the current Income GAP for Second National Bank? What will happen to the bank’s current net interest income if rates fall by 75 basis points? b. What special assumptions do income and duration gap analyses make about interest rate changes

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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You will deposit money into a bank account according to the following schedulet today year from today $225,000 $53,500 years from today years from today $49,750 4 $21,200 years from today $112,050 After 6 years from today, what will be the purchasing power of the money in your bank account, expressed in today's dollars? Your bank pays interest at 2.5000% compounded yearly and inflation is expected to be 1.1250% per year.
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Subject: acounting
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9. A bank offers a savings account with a 3% annual interest rate, compounded monthly. What is the effective annual interest rate?
On its savings accounts, the First National Bank offers a 5 percent nominal interest rate that is compounded monthly. Savings accounts at the Second National Bank have the same effective annual return, but interest is compounded quarterly. What nominal rate does the Second National Bank offer on its savings accounts? a. 5.12% b. 5.00% c. 5.02% d. 1.28% e. 5.22%
Bank 3 Liabilities (millions) 9. 17 Assets (millions) Maturities 1 day +1 day-3mos +3 mos-6 mos +6 mos-12 mos +l year- 5 years 6. 11 10 43 15 52 90 11 Use the Repricing Model. If interest rates rise by 56 basis points for assets and 142 basis points for liabilities over the next year, then how will impact the interest income of Bank 3 over the next year? O Bank 3 will experience a loss of $1,483,000 O Bank 3 will experience a gain of $679,400 Bank 3 will experience a loss of $679,400 Bank 3 will experience a gain of $1,953,400
Solve all parts
Use the following to answer questions 3-4: Use balance sheet available for an FI (all in market values). Consumer loans $150 m Liabilities $300 m Commercial Loans $250 m Equity $100 m Total Assets $400 m Total Liabilities & Equity $400 m The average duration of the loans is 8 years. The average duration of the liabilities is 2 years. 3. What is the duration gap of the bank's portfolio? A. 10 years B. 6.3 years C. 6.5 years D. 7.98 years E. 8.0 years 4. What is the change in the value of the FI's equity for a 1 percent increase in interest rates from the current rates of 0.07 (1.e., 7 percent)? Assume flat term structure, and parallel shifts in yield curves. Use the duration concept. A. $17.30987 m B. $19.51818 m C. -S 22.59093 m D. -$23.11114 m E. - $24.29906 m
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Accounts receivable as collateral, cost of borrowing Maximum Bank has analyzed the accounts receivable of Scientific Software, Inc. The bank has chosen eight accounts totaling $200,000 that it will accept as collateral. The bank's terms include a lending rate set at prime + 3.5% and a 1.5% commission charge. The prime rate currently is 9%. a. The bank will adjust the accounts by 10% for returns and allowances. It then will lend up to 90% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Scientific Software? b. What is Scientific Software's effective annual rate of interest if it borrows $120,000 for 12 months? For 6 months? For 3 months? (Note: Assume a 365-day year and a prime rate that remains at 9% during the life of the loan.) a. The maximum amount that the bank will lend to Scientific Software is $ (Round to the nearest dollar.)

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