A financial institution has the following market value balance sheet structure: Assets Cash Liabilities and Equity $ 2,6ee Certificate of deposit 10,4ee Equity $13,000 Total liabilities and equity $11.600 1, 4ee Bond Total assets $13.ee a. The bond has a 10-year maturity, a fixed-rate coupon of 12 percent paid at the end of each year, and a par value of $10,400. The certificate of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The Fl expects no additional asset growth. What will be the net interest income (NII) at the end of the first year? (Note Net Interest incohe equals interest income minus interest expense.) b. If at the end of year 1 market interest rates have increased 100 basis points (1 percent), what will be the net interest income for the second year? Is the change in Nll caused by reinvestment risk or refinancing risk? C. Assuming that market interest rates increase 1 percent, the bond will have a value of $9,866 at the end of year 1. What will be the market value of the equity for the FI? Assume that all of the Nil in part (a) is used to cover operating expenses or is distributed as dividends d. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? e. What factors have caused the changes in operating performance and market value for this FI? Complete this question by entering your answers in the tabs below. - G W w part (8) is used to cover operating expenses or is distributed as dividends. d. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? e. What factors have caused the changes in operating performance and market value for this FI? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E The bond has a 10-year maturity, a fixed-rate coupon of 12 percent paid at the end of each year, and a par value of $10,400 The certificate of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects no additional asset growth. What will be the net interest income (NII) at the end of the first year? (Note: Net interest income equals interest income minus interest expense.) Net interest income (II) Required B > UL UNUI ule u dit als used to cover operating expenses or is distributed as dividends. d. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? e. What factors have caused the changes in operating performance and market value for this FI? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E If at the end of year 1 market interest rates have increased 100 basis points (1 percent), what will be the net interest income for the second year? Is the change in NII caused by reinvestment risk or refinancing risk? Net interest income (NII) Is the change in Nil caused by -- M ITTE MIG wel in partla) is used to cover operating expenses or is distributed as dividends d. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? e. What factors have caused the changes in operating performance and market value for this FI? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Assuming that market interest rates increase 1 percent, the bond will have a value of $9,866 at the end of year 1. What will be the market value of the equity for the FI? Assume that all of the NII in part (a) is used to cover operating expenses or is distributed as dividends. What will be the market value of the equity for the FI Required Required D > UIVIULUS d. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? e. What factors have caused the changes in operating performance and market value for this Fl? Complete this question by entering your answers in the tabs below. Required A Required B Required Required Required D Required D Required E If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,400? (Negative amounts should be indicated by a minus sign.) The market value of the equity would be Thigher Thigher and the value of the CD would because the value of the bond would be remain unchanged Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E What factors have caused the changes in operating performance and market value for this FI? Caused the changes in operating performance and market value for this FI? Changes in the market interest rates
