Question
1. Given good population growth in Los Angeles Bank of Los Angeles is considering adding a new branch bank. It knows that it will cost
1.
Given good population growth in Los Angeles Bank of Los Angeles is considering adding a new branch bank. It knows that it will cost $1.5 million to build the branch and it believes that it will generate $254,526 per year for the first 3 years with required return of 12% and $300,000 per year for years 4 to 7 with required return of 15%. What is this project's net present value? (Round to the nearest $100)
a) -$500,337
b) $286,780
c)$760,981
d) -$638,525
e) -$325,513
2) IBC Bank wants to open a new branch in a distant city with very different economic conditions. Currently, the bank has an expected return of 25% with a standard deviation of 7.5%. The new branch is expected to have a return of 20% with a standard deviation of 15%. The correlation between the bank's returns and the returns from the new branch is 0.7. The new branch is expected to contribute 10% of the bank's revenues. What is the expected return for the bank if they add the new branch? What is the standard deviation of returns for the bank if they add the new branch?
a ) 24.50%, 6.15%
b) 17.57%, 5.33%
c) 24.50%, 6.59%
d) 24.50%, 7.87%
e) 17.57%, 7.18%
3) Wells Fargo Bank has provided UTSA a proposal for campus ATMs. UTSA proposed in-stalling one ATM in one of the two campuses as a test case. The locations would be identified as the East campus or the South campus. Given the following statistics and forecasts compiled by Wells Fargo Bank regarding the two alternatives, which campus should be used as a test case? Base your recommendation on returns and risk.
| Expected Return | Standard Deviation | Correlation Coefficient | Percentage Total Assets | ||
East campus | 16.00% | 7.00% | 0.4 | 15.00% | ||
South campus | 10.00% | 6.50% | 0.6 | 15.00% | ||
Wells Fargo Bank | 17.00% | 5.00% |
| 85.00% |
South: 15.95%, 5.74% | ||
East: 16.85%, 4.77% | ||
South: 15.95%, 4.90% | ||
East: 16.85%, 5.57% | ||
East: 16.85%, 5.25% |
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