Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Oldhat Financial starts its first day of operations with $10 million in capital. A total of $120 million in checkable deposits are received. The bank

image text in transcribed

Oldhat Financial starts its first day of operations with $10 million in capital. A total of $120 million in checkable deposits are received. The bank makes a $30 million commercial loan and another $40 million in mortgages, with the following terms: 200 standard 30-year, fixed-rate mortgages with a nominal annual rate of 5.25%, each for S200,000. Assume that required reserves are 8%. The bank's balance sheet is shown below: Assets Required reserves $10 Excess reserves $50 Loans $70 million million million Liabilities Checkable deposits Bank capital $120 million $10 million Early the next day the bank invests $35 million of its excess reserves in commercial loans. Later that day, terrible news hits the mortgage markets, and mortgage rates jump to 13%, implying a present value of its current mortgage holdings of $99,838 per mortgage. Bank regulators force Oldhat to sell ils mortgages to recognize the fair market value. What does Oldhat's balance sheet look like? (Round your responses to the nearest whole number. Use a minus sign lo enter negative numbers.) Fill in the blanks in the actual balance sheet as it would look after the sale: Assets Required reserves $ Excess reserves $ Loans million million million Liabilities Checkable deposits Bank capital S 9.6 million $ 13 million The bank is now in a dire capital position

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Courageous Auditing Beyond Compliance Towards Being A Catalyst For Change

Authors: Kathy Rees

1st Edition

0648958108, 978-0648958109

More Books

Students also viewed these Accounting questions

Question

How does the concept of hegemony relate to culture?

Answered: 1 week ago