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: Dollar Amount

Source of Funds (in millions) Rate

Demand Deposits $5,000 0%

Time Deposits $2,000 2%

1-year NCD $3,000 T-bill + 1.5%

5-year NCD $2,500 1-year NCD + 1%

Money Market $2,500 T-bill 1%

Total Liabilities $15,000

Use of Funds Loan Loss

Cash $1,800

Small Bus. Loans $4,000 T-bill + 3% 1.5%

Lg Bus. Loans $3,000 T-bill + 1.5% 1.0%

Consumer Loans $3,000 T-bill + 4% 2.5%

Treasury Bills $1,000 T-bill rate 0%

Treasury Bonds $1,500 T-bill rate + 2% 0%

Corporate Bonds $1,000 T-bond rate + 2% 0%

Fixed Assets $ 700

Total Assets $16,000

Non-Interest Revenue $ 300

Non-Interest Expense $ 400

Tax rate 34%

Difference between Assets and Liabilities must be Equity (Capital).

Current T-bill Rate 1.5%
Source of Funds	Dollar Amount (in millions)				Relevant Interest Rate	Expected Expenses
Demand deposits	$5,000
Time deposits	$2,000
1-year NCDs	$3,000
5-year NCDs	$2,500
Money Market Borrowings	$2,500
Total Liabilities	$15,000
Use of Funds		LL%	Loan Loss $ Amt	Funds Earning Interest	Relevant Interest Rate	Expected Earnings (corrected for LL)
Cash	$1,800
Small business loans	$4,000
Large business loans	$3,000
Consumer loans	$3,000
Treasury bills	$1,000
Treasury bonds	$1,500
Corporate bonds	$1,000
Total investments	$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	Interest Revenues
Entry #2	Interest Expenses
Entry #3	Non Interest Revenues
Entry #4	Non Interest Expenses
Entry #5	Loan Loss Provision
Entry #6	Income Before Tax
Entry #7	Income tax liability (34%)
Entry #8	Net Income
Entry #9	Cash Dividends (60% DPR)
Entry #10	Retained Earnings (40% RR)