Question
CONBANK bank has the following market value balance sheet structure: Assets (millions) Liabilities and Equity (millions) Cash $200,000 Certificate of Deposit $2,000,000 Loan $2,000,000 Equity
CONBANK bank has the following market value balance sheet structure:
Assets (millions) | Liabilities and Equity (millions) | ||
Cash | $200,000 | Certificate of Deposit | $2,000,000 |
Loan | $2,000,000 | Equity | $200,000 |
Total | $2,200,000 |
| $2,200,000 |
The loan has a fixed rate of 5% with a 15-year maturity and equal yearly payments (amortised). The certificate of deposit has a one-year maturity and a 3 percent fixed rate of interest. SBSC bank expects no additional asset growth.
Calculate the market value of equity at the end of year one assuming that market interest rates increased by 75 basis points.
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