Chapter 8, Problem CC.8Q

Problem 4. Consider the following balance sheet for Watchover Savings Incorporated (in millions): Assets Liabilities and Equity Floating-rate mortgages (currently 12% per annum) Now deposits (currently 8% per $ 82 annum) $ 116 30-year fixed-rate loans (currently 9% per annum) 5-year time deposits (currently 8% per 101 annum) 29 Equity 38 $ 183 Total $ 183 Total a. What is Watchover's expected net interest income at year-end? b. What will be the net interest income at year-end if interest rates rise by 3 percent? c. Using the one-year cumulative repricing gap model, what is the change in the expected net interest income for a 3 percent increase in interest rates?

You are given the following information for Frankenson Pizza Company: Sales = $72,000; Costs = $32,300; Addition to retained earnings = $6,500; Dividends paid = $2,220; Interest expense = $5,200; Tax rate = 23 percent. Calculate the depreciation expense. Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.

Assume coupons are paid annually. Here are the prices of three bonds with 10-year maturities. Assume face value is $100. Bond Coupon (%) Price (%) 2 4 8 81.62 98.39 133.42 a. What is the yield to maturity of each bond? b. What is the duration of each bond? Complete this question by entering your answers in the tabs below. Required A Required B What is the yield to maturity of each bond? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Bond Coupon (%) YTM 2 % 4 8 % % Required A Required R Required B What is the duration of each bond? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Bond Coupon (%) Duration 2 years 4 years 8 years