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A financial institution has the following market value balance sheet structure: Assets Liabilities and Equity Cash $ 3 , 5 0 0 Certificate of deposit
A financial institution has the following market value balance sheet structure:
Assets Liabilities and Equity
Cash $ Certificate of deposit $
Bond $ Equity $
Total assets $ Total liabilities and equity $
The bond has a year maturity, a fixedrate coupon of paid at the end of each year, and a par value of $ The certificate of deposit has a year maturity and an rate of interest. The FI expects no additional asset growth. What will be the net interest income at the end of the first year?
If at the end of year market interest rates have increased basis points what will be the net interest income for the second year? Is this result caused by reinvestment risk or refinancing risk?
Assuming that market interest rates increase what will be the value of the bond at the end of year What will be the market value of the equity for the FI
If market interest rates had decreased basis points by the end of year what will be the value of the bond at the end of year What will be the market value of the equity for the FI
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