Signet Bank has asked you to estimate the value of its loan portfolio.

The bank has \($1\) billion in loans outstanding, with an average maturity of six years, and expected interest income of \($75\) million a year. You have been able to get a synthetic rating of A for the entire loan portfolio, and the current market interest rate on A-rated bonds is 6.5%.

a. Estimate the value of the loan portfolio.

b. If Signet Bank has \($800\) million in debt outstanding, estimate the value of the equity in the bank based on the loans it has in place.