Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Q1 and Q2 please Bank Balance Sheet Assets Reserves and cash items Securities Less than 1 year 1-2 years Greater than 2 years Residential mortgages

image text in transcribedimage text in transcribedQ1 and Q2 please

Bank Balance Sheet Assets Reserves and cash items Securities Less than 1 year 1-2 years Greater than 2 years Residential mortgages Variable-rate Fixed-rate (30 years) Commerical loans Less than 1 year 1-2 years Greater than 2 years Physical capital Liabilities Checkable deposits Money market deposit accounts Savings deposits CDS Variable-rate Less than 1 year 1-2 years Greater than 2 years Less than 1 year 1-2 years Greater than 2 years Fed funds Borrowings Amount (Smillions) 3 437 9 15 13 31 55 10 10 5 12 6 19 8 15 10 12 9 39 Your Firm Duration (years) 0.0 0.6 1.6 5.0 0.4 5.5 0.9 1.8 6.0 0.0 1.0 0.6 1.0 0.4 0.3 1.1 2.9 0.0 0.4 1.2 2.9 Amount (Smillions) 4 5 7 9 21 17 30 22 30 25 14 9 16 12 14 10 10 14 18 12 31 Competition Duration (years) 0.0 0.3 1.2 4.0 0.9 4.4 0.6 1.4 5.4 0.0 1.0 0.5 1.0 0.6 0.5 1.8 2.2 0.0 0.7 1.8 3.8 You are in charge of examining the interest-rate risk of your bank relative to your direct competition. Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates. The table above contains all the relevant information. To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): 1. What are the totals for interest-rate-sensitive assets and liabilities for your firm and your competition. 2. Compute the net interest margin (NIM) for your firm for a 3% decline in interest rates. Do the same for a 3% increase in the interest rates. 3. Find the gap of your firm and your competition. 4. Using the Macaulay concept of duration, calculate the weighted duration of each asset and liability for both your firm and your competition. 5. What is the average duration for the assets and liabilities for your firm and your competition. 6. What is the duration gap for your firm and your competition. (assume that the portion of fixed-rate mortgages that will mature within 1 year is 20%, portion of checkable deposits (10%), portion of savings (20%)) Bank Balance Sheet Assets Reserves and cash items Securities Less than 1 year 1-2 years Greater than 2 years Residential mortgages Variable-rate Fixed-rate (30 years) Commerical loans Less than 1 year 1-2 years Greater than 2 years Physical capital Liabilities Checkable deposits Money market deposit accounts Savings deposits CDS Variable-rate Less than 1 year 1-2 years Greater than 2 years Less than 1 year 1-2 years Greater than 2 years Fed funds Borrowings Amount (Smillions) 3 437 9 15 13 31 55 10 10 5 12 6 19 8 15 10 12 9 39 Your Firm Duration (years) 0.0 0.6 1.6 5.0 0.4 5.5 0.9 1.8 6.0 0.0 1.0 0.6 1.0 0.4 0.3 1.1 2.9 0.0 0.4 1.2 2.9 Amount (Smillions) 4 5 7 9 21 17 30 22 30 25 14 9 16 12 14 10 10 14 18 12 31 Competition Duration (years) 0.0 0.3 1.2 4.0 0.9 4.4 0.6 1.4 5.4 0.0 1.0 0.5 1.0 0.6 0.5 1.8 2.2 0.0 0.7 1.8 3.8 You are in charge of examining the interest-rate risk of your bank relative to your direct competition. Interest-rate risk depends on each bank's relative position of interest-sensitive assets and liabilities. You begin the analysis by collecting the information and estimates. The table above contains all the relevant information. To prepare your presentation for the bank officers, you anticipate and answer the following questions (5 points each): 1. What are the totals for interest-rate-sensitive assets and liabilities for your firm and your competition. 2. Compute the net interest margin (NIM) for your firm for a 3% decline in interest rates. Do the same for a 3% increase in the interest rates. 3. Find the gap of your firm and your competition. 4. Using the Macaulay concept of duration, calculate the weighted duration of each asset and liability for both your firm and your competition. 5. What is the average duration for the assets and liabilities for your firm and your competition. 6. What is the duration gap for your firm and your competition. (assume that the portion of fixed-rate mortgages that will mature within 1 year is 20%, portion of checkable deposits (10%), portion of savings (20%))

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

The Future For Investors

Authors: Jeremy Siegel

1st Edition

140008198X, 978-1400081981

More Books

Students also viewed these Finance questions

Question

Define and explain the goals of employee orientation/onboarding

Answered: 1 week ago