The managers of Grand Bank asks for a performance/risk analysis, and asks you to answer the...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The managers of Grand Bank asks for a performance/risk analysis, and asks you to answer the following questions. Grand Bank's balance sheet is as follows: Assets: Securities 3% rate Long-term Loans 7% rate Total Assets Liabilities & Equity Short-term Deposits 1% rate Certificates of Deposit 2% rate Total Liabilities e. Equity Total Liab.& Equity $20 million $ 120 million S 140 million $ 100 million 26 million $126 million 14 million $140 million Ave. Duration 1 year 6 years 1 year 2 year a. What is the bank's expected net interest income $ (NII) and expected net interest margin (NIM)? [Hint: NII = Sum (Each asset x its rate) - Sum (Each liability x its rate)] and NIM = NII / Earning Total Assets (excludes cash) NII (S's) NIM % b. If the bank has the NIM % that you calculated above, a PLL% of 1.20%, and a Burden % of 2.50%, what is the bank's operating ROA before taxes (NIM- Burden% - PLL%)? Operating ROA (OROA) c. What is the equity multiplier (EM) for the bank? (hint EM= total assets/equity) EM c. Using this equity multiplier, what is the bank's Operating ROE? (hint ROE = OROA x EM) Operating ROE What is the bank's 1-year income (funding) gap (Rate Sensitive Assets (RSA) for 1 year-Rate Sensitive Liabilities (RSL) for 1 year? Funding Gap e. Given this funding gap if rates go up by 1%, what is the expected change in the bank's NII S? [Hint: Change NII S-Funding Gap x Change Rate] Expected Change in NII e. What is the Bank's Duration gap (D-Gap)? D-GAP = Duration of Assets - {[Total Liabs./Total Assets] x Duration Liabs.} Hint: Duration of Assets = Sum {[Each type of asset/Total Assets] x its Duration} Duration of Liabilities - Sum ([Each type of Liability/Total Liabs.] x its Duration) Duration of Assets Duration of Liabilities Duration Gap f. What is the expected % change in the value of equity with a rise in rates of 1%? Expected Change in Value of Equity--D-GAP x {[(Chg rate / (1+ Ave loan rate)] *** (Use 7% as the average loan rate). Expected % Chg in the Value of the Bank's Equity The managers of Grand Bank asks for a performance/risk analysis, and asks you to answer the following questions. Grand Bank's balance sheet is as follows: Assets: Securities 3% rate Long-term Loans 7% rate Total Assets Liabilities & Equity Short-term Deposits 1% rate Certificates of Deposit 2% rate Total Liabilities e. Equity Total Liab.& Equity $20 million $ 120 million S 140 million $ 100 million 26 million $126 million 14 million $140 million Ave. Duration 1 year 6 years 1 year 2 year a. What is the bank's expected net interest income $ (NII) and expected net interest margin (NIM)? [Hint: NII = Sum (Each asset x its rate) - Sum (Each liability x its rate)] and NIM = NII / Earning Total Assets (excludes cash) NII (S's) NIM % b. If the bank has the NIM % that you calculated above, a PLL% of 1.20%, and a Burden % of 2.50%, what is the bank's operating ROA before taxes (NIM- Burden% - PLL%)? Operating ROA (OROA) c. What is the equity multiplier (EM) for the bank? (hint EM= total assets/equity) EM c. Using this equity multiplier, what is the bank's Operating ROE? (hint ROE = OROA x EM) Operating ROE What is the bank's 1-year income (funding) gap (Rate Sensitive Assets (RSA) for 1 year-Rate Sensitive Liabilities (RSL) for 1 year? Funding Gap e. Given this funding gap if rates go up by 1%, what is the expected change in the bank's NII S? [Hint: Change NII S-Funding Gap x Change Rate] Expected Change in NII e. What is the Bank's Duration gap (D-Gap)? D-GAP = Duration of Assets - {[Total Liabs./Total Assets] x Duration Liabs.} Hint: Duration of Assets = Sum {[Each type of asset/Total Assets] x its Duration} Duration of Liabilities - Sum ([Each type of Liability/Total Liabs.] x its Duration) Duration of Assets Duration of Liabilities Duration Gap f. What is the expected % change in the value of equity with a rise in rates of 1%? Expected Change in Value of Equity--D-GAP x {[(Chg rate / (1+ Ave loan rate)] *** (Use 7% as the average loan rate). Expected % Chg in the Value of the Bank's Equity
Expert Answer:
Answer rating: 100% (QA)
a The banks expected net interest income NII can be calculated as follows NII 003 x 20 million 007 x ... View the full answer
Related Book For
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
Posted Date:
Students also viewed these finance questions
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Steven Stores, Inc. provided the following statement of net income for the current year. All income is subject to a 40% income tax rate. The company also had $ 735 of unrealized holding gains on its...
-
Entopic halos if someone looks at a bright outdoor lamp in otherwise dark surroundings, the lamp appears to be surrounded by bright and dark rings (hence halos) that are actually a circular...
-
Gibraltar Industries, Inc., is a manufacturer of steel products for customers such as Home Depot, Lowe's, Chrysler, Ford, and General Motors. In the year ended December 31, 2008, it reported the...
-
A particle of pure \(\mathrm{NaCl}\) is dissolving in an aqueous liquid solution at \(18^{\circ} \mathrm{C}\). The dissolution of the particle is controlled by mass transfer. The system is vigorously...
-
Judds Company purchased a new plant asset on April 1, 2008, at a cost of $711,000. It was estimated to have a service life of 20 years and a salvage value of $60,000. Judds accounting period is the...
-
Google Sheets - Create a Budget Sheet You can use technology to help you with your budget sheet calculations
-
Redwood Inc, which owned a parcel of land that contained dense forests, entered into a contract with Bunyon Corp. Bunyon was required to cut and remove the trees from a 40-hectare area. In exchange,...
-
Consider a wholesale electricity market with three types of generators: nuclear plants, natural gas plants and oil-fired peak shavers. There are 3 plants in this market: one 10,000 MW nuclear plant,...
-
On April 1 , 2 0 2 2 , a tenant in an apartment building owned by the company paid $ 9 , 6 0 0 , which represents rent for 6 months in advance. The amount received was credited to the Unearned Rent...
-
1 . Nicholas owned stock that decreased in value by $ 2 0 , 0 0 0 during the year, but he did not sell the stock. He earned $ 3 4 , 0 0 0 salary, but received only $ 2 5 , 0 0 0 because $ 1 1 , 0 0 0...
-
Compare the primary and secondary financial markets. Give examples.What does a broker do ? And a dealer?Who is WACC important for and why?
-
Taxpayer he intends to complete a master's degree in economics. As part of the course work, he is required to teach microeconomics, an introductory economic course for undergraduate students. In...
-
Payroll records must be maintained securely and allow auditor access. Explore the significance of ensuring both security and accessibility in payroll records. How can organizations strike a balance...
-
KINGBIRD INC. Statement of Retained Earnings Year Ended July 31, 2024 Retained Earnings, August 1, 2023 Add Profit/(Loss) for the Year Less Cash Dividends $ 366,080 $ Retained Earnings, July 31, 2024...
-
Represent each of the following combination of units in the correct SI form using an appropriate prefix: (a) m/ms, (b) k m, (c) k s /mg, and (d) k m N.
-
A first year co-op student working for UR Here.com recorded the transactions for the month. He wasnt exactly sure how to journalize and post, but he did the best he could. He had a few questions,...
-
Oprah and Ellen are discussing how the market price of a bond is determined. Oprah believes that the market price of a bond is solely a function of the amount of the principal payment at the end of...
-
The ledger of Molina Company at the end of the current year shows Accounts Receivable $86,000; Credit Sales $780,000; and Sales Returns and Allowances $40,000. Instructions (a) If Molina uses the...
-
How has the London Stock Exchange kept its position as one of the leading markets?
-
What is Mifid and what were its aims?
-
What are multilateral trading platforms?
Study smarter with the SolutionInn App