I could use some help with this homework set for class.

Part 3: The following is based upon the Integrative Problem in the text, posted to blackboard, and discussed in class. The completed INCOME STATEMENT on the worksheet provides for 10 entries (answers), each worth 3 points. [30 points total] Use the information provided to forecast the earnings and expenses associated with the Sources and Uses of the bank funds for each category in the order listed and then answer the questions asked. See worksheet provided on separate sheet. Current Treasury Bill rate is 1.5%. Be sure to consider that bad debt would not be expected to earn interest. Correctly completed worksheet is worth 20 points. DATA: Source of Funds Demand Deposits Time Deposits 1-year NCD 5-year NCD Money Market Total Liabilities Dollar Amount (in millions) $5,000 $2,000 $3,000 $2,500 $2,500 $15,000 Use of Funds Cash Small Bus. Loans Lg Bus. Loans Consumer Loans Treasury Bills Treasury Bonds Corporate Bonds Fixed Assets Total Assets $1,800 $4,000 $3,000 $3,000 $1,000 $1,500 $1,000 $ 700 $16,000 Non-Interest Revenue Non-Interest Expense Tax rate $ 300 $ 400 34% Rate 0% 2% T-bill + 1.5% 1-year NCD + 1% T-bill - 1% Loan Loss T-bill + 3% T-bill + 1.5% T-bill + 4% T-bill rate T-bill rate + 2% T-bond rate + 2% 1.5% 1.0% 2.5% 0% 0% 0% Difference between Assets and Liabilities must be Equity (Capital). Current T-bill Rate 1.5% Source of Funds Dollar Relevant Amount Interest (in millions) Rate Demand deposits $5,000 Time deposits $2,000 1-year NCDs $3,000 5-year NCDs $2,500 Money Market $2,500 Borrowings Expected Expenses Total Liabilities Use of Funds $15,000 Cash Small business loans Large business loans Consumer loans Treasury bills Treasury bonds Corporate bonds Total investments $1,800 $4,000 LL% Loan Loss $ Amt Funds Earning Interest Relevant Interest Rate Expected Earnings (corrected for LL) $3,000 $3,000 $1,000 $1,500 $1,000 $15,300 Income Statement *DPR: dividend payout ratio (portion of earnings available to common stockholders paid out as dividends), thus 1-DPR = Retention Ratio. Entry #1 Entry #2 Entry #3 Entry #4 Entry #5 Entry #6 Entry #7 Entry #8 Entry #9 Entry #10 Interest Revenues Interest Expenses Non Interest Revenues Non Interest Expenses Loan Loss Provision Income Before Tax Income tax liability (34%) Net Income Cash Dividends (60% DPR) Retained Earnings (40% RR) Part 4: interpretive statements related to bank performance as indicated with forecasted balance sheet and income statement. [30 points total] These four questions are worth 3 points each. 1. Calculate the Expected ROA and ROE for the bank. [Capital (or Equity) is implied in the data provided.] (worksheet provided to add in creating balance sheet and income statement so as to determine ROE and ROA.) 2. Calculate the Primary Liquidity Ratio Position to contrast with an industry average of 10% (Primary is the Vault Cash plus Reserves at the Fed). 3. Calculate the total Liquidity Position to contrast with an industry average of 15%. (Total Liquidity Position is the cash position plus the holding of short term US Treasuries. {T-bonds are held as collateral when the bank is designated by the FED as a Tax & Loan Facility for the Treasury, and are not held for liquidity.}) 4. Calculate the Current Capital Ratio Position (Capital Ratio is the Equity or Capital divided by Total Assets) to contrast with a Basil Expectation of 8% for a risk-ranked institution similar to this one. Each of these six segments of question #5 is worth 3 points. These questions do not require the completion of the Income Statement for determination of answers, but rather asks you to consider the general impact on earnings of various shifts in the funds, similar to the example done in class in our most recent meeting. Argue conceptually whether you agree or disagree, using reference to the relationships expressed in the numbers/data provided concerning the bank's financial statements, with each of the next statements. Assume all else stays the same for each statement. Answers may take the form of a sentence or two, but no larger than a simple paragraph. Do you agree or disagree with the statement, and most importantly, why? 5. If market interest rates rise next year, the GAP will rise causing ROA and ROE to rise. 6. If Required Reserves were to add an additional 3% to the Uses for Funds causing a movement of funds from other accounts, then the GAP, the ROA & ROE would all rise. 7. Replacing $1 billion in five-year NCDs with $1 billion of 1-year NCDs will increase ROA & ROE. 8. Provide a brief explanation as to why the bank would be cautious (concerned) with the longer-term impact of the decision to use fewer 5-year NCDs and more 1-year NCDs in part c. 9. Shifting $1 billion from T-bills to make small business loans will raise ROA and would increase (improve) its liquidity position. 10. The bank will replace $200 million in five-year NCDs with a variable rate preferred stock issue based on the 1-year NCD rate + 2%. This change in Capital will reduce ROA but increase ROE