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LSUBank started its first day of operations with $10 million in capital. $100 million in checkable deposits is received. The bank issues a $30 million
LSUBank started its first day of operations with $10 million in capital. $100 million in checkable deposits is received. The bank issues a $30 million commercial loan and another $20 million in mortgages, with the following terms: mortgages: 100 standard 30-year, fixed-rate with a nominal annual rate of 6% each for $200,000. commercial loan: 3-year loan, simple interest paid monthly at 0.5%/month The bank decides to invest $50 million in 30-day T-bills. The T-bills are currently trading at $4,980 (including commissions; round the number to an integer) for a $5,000 face value instrument. It also borrows $5 million in the fed funds market for 30 days. The required yield on a discount basis is 3%. 1. If required reserves are 10%, what does the bank balance sheets look like on the first day of operation? (Separate required reserves and excess reserves) (40 points) II. At the end of month, checkable deposits incur an outflow of $10 million and if LSUBank is required to establish a loan loss reserve at 0.5% of the loan value for commercial loans (assuming the 34% tax bracket), what does the bank balance sheets look like? (There is no need to show credit/debit, but you need to show calculation to get full credits.) (60 points)
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