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Use this balance sheet information to answer the following questions: Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) Assets Amount Duration
Use this balance sheet information to answer the following questions: Financial Institution (FI) Balance Sheet (Amount in millions, Duration in years) Assets Amount Duration Liabilities Amount Duration Cash 50 ? Core Deposits 750 1.25 yrs Treasury Bonds 350 1.95 yrs CDs 300 1.00 yrs Loans (special) 650 ? Euro CDs ? 0.75 yrs Loans (fixed) 450 3.25 yrs Equity 150 I The bank is considering approving a special loan with the following characteristics: Loan A: The loan that has 4 years to maturity and has bond-like repayments. Loan B: The loan has repayments of $123.25 at the end of year 1, $575.25 at the end of year 4, $29.25 at the end of year 5 and $34.125 at the end of year 6. Both loans are trading at par and the yield to maturity is 4.5 percent per annum. Select the loan that bank should approve. Please provide justification. Assume that both loans have similar default risk. Assuming a flat yield curve and a parallel shift of the entire yield curve of 50-basis points upward what is the impact on the FI's market value of equity?
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