Assets Cash Bond Total assets Liabilities and Equity $ 2,900 Certificate of deposit 10,200 Equity $ 13,100 Total liabilities and equity $ 11,900 1,200 $ 13, 100 a. The bond has a 10-year maturity, a fixed-rate coupon of 9 percent paid at the end of each year, and a par value of $10,200. The certificate of deposit has a 1-year maturity and a 5 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 income 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 Nil caused by reinvestment risk or refinancing risk? c. Assuming that market interest rates increase 1 percent, the bond will have a value of $9,613 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 $1,200? e. What factor has 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 Required D Required E The bond has a 10-year maturity, a fixed-rate coupon of 9 percent paid at the end of each ye The certificate of deposit has a 1-year maturity and a 5 percent fixed rate of interest. The FI growth. What will be the net interest income (NII) at the end of the first year? (Note: Net int income minus interest expense.) Net interest income (NII) Required Required B > A financial institution has the following market value balance sheet structure: Assets Liabilities and Equity Cash $ 2,900 Certificate of deposit Bond 10,200 Equity Total assets $ 13,100 Total liabilities and equity $ 11,900 1,200 $ 13, 100 a. The bond has a 10-year maturity, a fixed-rate coupon of 9 percent paid at the end of each year, and a par value of $10,200. The certificate of deposit has a 1-year maturity and a 5 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 income 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 $9.613 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 $1,200? e. What factor has 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 Required D Required E Assuming that market interest rates increase 1 percent, the bond will have a value of $9,613 be the market value of the equity for the FI? Assume that all of the NII in part (a) is used to distributed as dividends. Market value of the equity for the FI Assets Cash Bond Total assets $ 2,900 10,200 $ 13, 100 Liabilities and Equity Certificate of deposit Equity Total liabilities and equity $ 11,900 1,200 $ 13, 100 a. The bond has a 10-year maturity, a fixed-rate coupon of 9 percent paid at the end of each year, and a par value of $10,200. The certificate of deposit has a 1-year maturity and a 5 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 income 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 NII caused by reinvestment risk or refinancing risk? C. Assuming that market interest rates increase 1 percent, the bond will have a value of $9,613 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 $1,200? e. What factor has caused the changes in operating performance and market value for this FI? es 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), whi 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
