answers for question 1 & 2 only with working out please if possible
Question PARTA The book value of DRAGON SLAYER BANK's balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions. Required 1. What is the cumulative repricing gap if the planning period is (a) 1 year (b) 3 year (2 + 2 marks) 2. What will happen to the net interest income of the bank, if interest on the banks rate sensitive assets is forecasted to decrease by 30 basis points and rate-sensitive liabilities to increase 50 basis points in 6 months' time? (4 marks) 3. Due to the uncertainty in the economy, based on the bank's estimate there is a potential of decrease in the demand deposits. What are some of the impact may that have on the bank's overall asset-liability? (4 marks) 4. Does the bank have sufficient liquid capital to cushion any unexpected losses as per the Basle Ill requirement? Please ignore the cyclical buffer requirement (8 marks) Asset Cash Liability & Equity Demand deposits Savings accounts (2.0%) 55 50 6 month T-bills (4.25%) 100 3 month CD (2.50%) 2 year personal fixed rate loan at 6.50% 3 year T bills (4.85%) 9 months CDs (3.85%) 100 90 1 year term deposit (4.0%) PART B The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value. 100 3 year 5.5% semi-annual coupon T-notes (5.25%) 5 year 6.2% semi-annual coupon T-notes (5.75%) 5 year personal loan (11.5%, repriced yearly) 2 year term deposits (4.30%) 350 Asset($mil) 3 year annual 6.45%pa coupon bond 5 year 3.5% semi-annual coupon bond 150 5 year bond 8.0% annual coupon issued by Spanish government with rating credit rating B $250 $100 Liability (Smil) 9 months treasury bills 15 year semi-annual coupon (6.30%pa) bond Equity $250 $200 5.year bonds at 6.75% semiannual interest, balloon payment 10 year treasury bond 7.5% semi annual coupon $350 $250 20-year bonds at 7.5% interest, balloon payment 730 $700 $700 10 year commercial loan (12.25% repriced @ 6 months) 220 Subordinate notes: 3-year fixed rate (5.65%) 15-year commercial loan at 10% interest (re priced monthly) 20-year sovereign bonds 12.0% annual-coupon issued by Cambodian government with BB rating 150 6-year fixed rate (6.00%) 5. Assume current market yield is flat at 8.0% p.a. What is the duration gap of the bank? (5 marks) 6. Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 2.5%p.a.?....... (4 marks) 7. What is the maturity gap of the bank (1 marks) Ordinary Equity Preference shares Some notes: 240 20-year mortgages at 8.5% interest (LVR 65%, no mortgage insurance), balloon payment Retained Eamings Question 2. Read Chapter 5. Or refer tutorial (topic 5) question 16 Questions 3 and 4 . There is no word limit. However, if you know the key issues, you should be able to explain your answer within the 500 word limit. Question 4, To avoid any confusion, please use the following link from APRA for conversion purpose. You mainly only require to refer to Attachment A and Attachment F. Building Total Assets 150 2485 Total liability and equity 2485 Question PARTA The book value of DRAGON SLAYER BANK's balance sheet is listed below. The current market yield for the securities is in parentheses. The amounts are in millions. Required 1. What is the cumulative repricing gap if the planning period is (a) 1 year (b) 3 year (2 + 2 marks) 2. What will happen to the net interest income of the bank, if interest on the banks rate sensitive assets is forecasted to decrease by 30 basis points and rate-sensitive liabilities to increase 50 basis points in 6 months' time? (4 marks) 3. Due to the uncertainty in the economy, based on the bank's estimate there is a potential of decrease in the demand deposits. What are some of the impact may that have on the bank's overall asset-liability? (4 marks) 4. Does the bank have sufficient liquid capital to cushion any unexpected losses as per the Basle Ill requirement? Please ignore the cyclical buffer requirement (8 marks) Asset Cash Liability & Equity Demand deposits Savings accounts (2.0%) 55 50 6 month T-bills (4.25%) 100 3 month CD (2.50%) 2 year personal fixed rate loan at 6.50% 3 year T bills (4.85%) 9 months CDs (3.85%) 100 90 1 year term deposit (4.0%) PART B The following is the balance sheet of a VRY-SMPL Bank. All the items are recorded based on the book value and they were purchased at par value. 100 3 year 5.5% semi-annual coupon T-notes (5.25%) 5 year 6.2% semi-annual coupon T-notes (5.75%) 5 year personal loan (11.5%, repriced yearly) 2 year term deposits (4.30%) 350 Asset($mil) 3 year annual 6.45%pa coupon bond 5 year 3.5% semi-annual coupon bond 150 5 year bond 8.0% annual coupon issued by Spanish government with rating credit rating B $250 $100 Liability (Smil) 9 months treasury bills 15 year semi-annual coupon (6.30%pa) bond Equity $250 $200 5.year bonds at 6.75% semiannual interest, balloon payment 10 year treasury bond 7.5% semi annual coupon $350 $250 20-year bonds at 7.5% interest, balloon payment 730 $700 $700 10 year commercial loan (12.25% repriced @ 6 months) 220 Subordinate notes: 3-year fixed rate (5.65%) 15-year commercial loan at 10% interest (re priced monthly) 20-year sovereign bonds 12.0% annual-coupon issued by Cambodian government with BB rating 150 6-year fixed rate (6.00%) 5. Assume current market yield is flat at 8.0% p.a. What is the duration gap of the bank? (5 marks) 6. Using the duration gap estimated from question 6, what will happen to the net worth of the bank if the market yield goes up by 2.5%p.a.?....... (4 marks) 7. What is the maturity gap of the bank (1 marks) Ordinary Equity Preference shares Some notes: 240 20-year mortgages at 8.5% interest (LVR 65%, no mortgage insurance), balloon payment Retained Eamings Question 2. Read Chapter 5. Or refer tutorial (topic 5) question 16 Questions 3 and 4 . There is no word limit. However, if you know the key issues, you should be able to explain your answer within the 500 word limit. Question 4, To avoid any confusion, please use the following link from APRA for conversion purpose. You mainly only require to refer to Attachment A and Attachment F. Building Total Assets 150 2485 Total liability and equity 2485
