Question
Bank of City One has credit asset of $120 million with a spread of 85 basis points over HIBOR. (HIBOR is currently 1.77% p.a.) Suppose
Bank of City One has credit asset of $120 million with a spread of 85 basis points over HIBOR. (HIBOR is currently 1.77% p.a.) Suppose Bank of City One has to pay 70 basis point of its credit asset value to CDS seller and the new risk weighting becomes 20%.
Determine the ROE with the use of the CDS.
Additional information:
The Bank aims to maintain 10.5% CAR and funding cost is HIBOR. Assume no reserve requirement.
Step by Step Solution
3.47 Rating (163 Votes )
There are 3 Steps involved in it
Step: 1
SOLUTION To determine the Return on Equity ROE with the use of the Credit Default Swap CDS we need t...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Reporting Financial Statement Analysis And Valuation A Strategic Perspective
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
9th Edition
1337614689, 1337614688, 9781337668262, 978-1337614689
