Question
The Jaguar Bank of Indianapolis (JBI) starts operations on January 1, 2016 issuing equity amounting $ 150. JBI advertises an annual interest of 2% for
The Jaguar Bank of Indianapolis (JBI) starts operations on January 1, 2016 issuing equity amounting $ 150. JBI advertises an annual interest of 2% for its savings deposits, paid annually, and a $ 9 a year maintenance fee for each checking account. On the first day of operations, 3 customers open checking accounts with JBI and save a total of $ 1000 in their checking accounts. The same customers save a total of $850 in their savings accounts. The bank lends $ 1250 for 3 years at an annual interest rate of 4% and another $ 350 for 10 years at an annual interest rate of 8%. It also purchases treasury bills worth $200 which earns 1% per annum. JBI maintains the required reserve (10% of checking deposit balances) at the Fed and keeps the remaining liquidity in cash reserves. Federal Reserve pays no interest on JBIs reserve account. Nor does JBI on checking accounts of its customers. JBIs operational expenses during its first year of operations is $ 70 and the corporate tax rate is 25%. Shareholders of JBI receive 10% dividends. (a) Prepare JBIs balance sheet as at January 1, 2016 at the closure of business. (b) Find the equity ratio and the risk-adjusted capital ratio (Basel II) and compare with the regulatory requirements. (c) Assume one of the clients who borrowed $ 350 for 10 years defaults and the bank sells a collateral to recover $ 300. Can JBI still comply with the capital adequacy requirements (ER and Risk-adjusted capital)? (d) Prepare JBIs income statement after its first year of operations. Calculate ROE and ROA (Ignore the assumption in part c)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started