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Bank received S1,000,000 cash for a certificate of deposit. The CD has a 3-year maturity and a 5% interest rate and only makes payments at
Bank received S1,000,000 cash for a certificate of deposit. The CD has a 3-year maturity and a 5% interest rate and only makes payments at maturity. Immediately, the proceeds from this CD used, plus equity, to issue a 4-year commercial loan. The bank gave out $1,200,000 cash for this loan, which was priced to yield 8%, and will be paid back in 4 equal annual installments. These are the only two securities that the bank has (other than equity (a) As of now, how much equity does the bank have? (b) As of now, what is the bank's leverage-adjusted duration gap? (c) As of now, illustrate how the bank is exposed to interest rates? (d) Immediately after issuing both securities, all market interest rates increased by 300 basis points. After this change in rates, calculate the new market value of Augusta's equity. (e) Regarding duration, illustrate what has happened to the bank's equity With details and equations for each part, please. My goal is to understand not only the answer Bank received S1,000,000 cash for a certificate of deposit. The CD has a 3-year maturity and a 5% interest rate and only makes payments at maturity. Immediately, the proceeds from this CD used, plus equity, to issue a 4-year commercial loan. The bank gave out $1,200,000 cash for this loan, which was priced to yield 8%, and will be paid back in 4 equal annual installments. These are the only two securities that the bank has (other than equity (a) As of now, how much equity does the bank have? (b) As of now, what is the bank's leverage-adjusted duration gap? (c) As of now, illustrate how the bank is exposed to interest rates? (d) Immediately after issuing both securities, all market interest rates increased by 300 basis points. After this change in rates, calculate the new market value of Augusta's equity. (e) Regarding duration, illustrate what has happened to the bank's equity With details and equations for each part, please. My goal is to understand not only the
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