Financial Accounting For Undergraduates 4th Edition Wallace - Solutions

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Masoner Savings, headquartered in a small community, holds most of its correspondent deposits with Flagg Metrocenter Bank, a money center institution. When Masoner has a cash surplus in its correspondent deposit, Flagg automatically invests the surplus in Fed funds loans to other money center
Relgade National Bank secures primary credit from the Federal Reserve Bank of San Francisco in the amount of $32 million for a term of seven days. Please show the proper entries for granting this loan and then paying off the loan.
Shad Corporation purchases a 60-day negotiable CD with a $5 million denomination from Bait Bank and Trust, bearing a 2.95 percent annual yield. How much in interest will the bank have to pay when this CD matures? What amount in total will the bank have to pay back to Shad at the end of 60 days?
Deep Valley Bank borrows $125 million overnight through a repurchase agreement (RP) collateralized by Treasury bills. The current RP rate is 2.50 percent. How much will the bank pay in interest cost due to this borrowing?
Thyme Bank of New York expects new deposit inflows next month of $265 million and deposit withdrawals of $425 million The bank's economics department has projected that new loan demand will reach $400 million and customers with approved credit lines will need $175 million in cash. The bank will
Wells Fargo Bank borrowed $150 million in Fed funds from JP Morgan Chase Bank in New York City for 24 hours to fund a 30 day loan. The prevailing Fed funds rate on loans of this maturity stood at 2.25 percent when these two institutions agreed on the loan. The funds loaned by Morgan were in the
Blue Skies Bank of Florida issues a three-month (90-day) negotiable CD in the amount of $20 million to ABC Insurance Company at a negotiated annual interest rate of 2.75 percent (360 day basis). Calculate the value of this CD account on the day it matures and the amount of interest income ABC will
Banks and other lending affiliates within the holding company of Best-of-Times Financial are reporting heavy loan demand this week from companies in the southeastern United States that are planning a significant expansion of inventories and facilities before the beginning of the fall season. The
Surfs-Up Security Savings is considering the problem of trying to raise $80 million in money market funds to cover a loan request from one of its largest corporate customers, which needs a six-week loan. Assume that market interest rates are at the levels indicated below:Federal funds, average for
June Bug Bank and Trust has received $750 million in total funding, consisting of $200 million in checkable deposit accounts, $400 million in time and savings deposits, $100 million in money market borrowings, and $50 million in stockholders’ equity. Interest costs on time and savings deposits
Inspiration Savings Association is considering funding a package of new loans in the amount of $400 million. Inspiration has projected that it must raise $450 million in order to have $400 million available to make new loans. It expects to raise $325 million of the total by selling time deposits at
What services are provided by investment banks (IBs)? Who are their principal clients?
Why were U.S. commercial banks forbidden to offer investment banking services for several decades? How did this affect the ability of U.S. banks to compete for underwriting business?
What advantages do commercial banks with investment banking affiliates appear to have over competitors that do not offer investment banking services? Possible disadvantages?
What are investment products? What advantages might they bring to an institution choosing to offer these services?
What risks do investment products pose for the institutions that sell them? How might these risks be minimized?
How do trust services generate fee income and often deposits as well for banks and other financial institutions offering this service?
What types of insurance products do banks and a number of their competitors sell today? What advantages could these products offer depository institutions choosing to sell insurance services? Can you see any possible disadvantages?
What is convergence? Product-line diversification? Economies of scale and scope? Why might they be of considerable importance for banks and other financial-service firms?
How can financial-service customers limit the sharing of their private data by different financial-service firms? In what ways could customer information sharing be useful for financial institutions and for their customers? What possible dangers does information sharing present?
What exactly are trust services?
Suppose the management of the First National Bank of New York decides that it needs to expand its fee-income-generating services. Among the services the bank is considering adding to its service menu are investment banking, the brokering of mutual funds, stocks, bonds and annuities, sales of life
A commercial bank decides to expand its service menu to include the underwriting of new security offerings (i.e., investment banking) as well as offering traditional lending and deposit services. It discovers that the expected return and risk associated with these two sets of service offerings are
Based on what you learned from reading this chapter and from studies you uncovered on the Web, which of the financial firms listed below are most likely to benefit from economies of scale or scope and which will probably not benefit significantly from these economies based on the information given?
What crucial roles does capital play in the management and viability of a financial firm?
What are the links between capital and risk exposure among financial-service providers?
What forms of capital are in use today? What are the key differences between the different types of capital?
Measured by volume and percentage of total capital, what are the most important and least important forms of capital held by U.S.-insured banks? Why do you think this is so?
How do small banks differ from large banks in the composition of their capital accounts and in the total volume of capital they hold relative to their assets? Why do you think these differences exist?
What is the rationale for having the government set capital standards for financial institutions as opposed to letting the private marketplace set those standards?
What is the difference between core (or tier 1) capital and supplemental (or tier 2) capital?
A bank reports the following items on its latest balance sheet: allowance for loan and lease losses, $42 million; undivided profits, $81 million; subordinated debt capital, $3 million; common stock and surplus, $27 million; equity notes, $2 million; minority interest in subsidiaries, $4 million;
What changes in the regulation of bank capital were brought into being by the Basel Agreement? What is Basel I? Basel II?
First National Bank reports the following items on its balance sheet: cash, $200 million; U.S. government securities, $150 million; residential real estate loans, $300 million; and corporate loans, $350 million. Its off-balance-sheet items include standby credit letters, $20 million, and long-term
How is the Basel Agreement likely to affect a bank's choices among assets it would like to acquire?
What are the most significant differences among Basel I, II, and III? Explain the importance of the concepts of internal risk assessment, VaR, and market discipline.
What steps should be part of any plan for meeting a long-range need for capital?
How does dividend policy affect the need for capital?
What is the ICGR, and why is it important to the management of a financial firm?
Suppose that a bank has a return on equity capital of 12 percent and that its retention ratio is 35 percent. How fast can this bank's assets grow without reducing its current ratio of capital to assets? Suppose that the bank's earnings (measured by ROE) drop unexpectedly to only two-thirds of the
What evidence does recent research provide on the role of the private marketplace in determining capital standards?
According to recent research, does capital prevent a financial institution from failing?
What are the most popular financial ratios regulators use to assess the adequacy of bank capital today?
What are the principal sources of external capital for a financial institution?
The management at Sage National Bank located in Key West, Florida, is calculating the key capital adequacy ratios for its third-quarter reports. At quarter-end, the bank’s total assets are $95 million and its total risk-weighted assets including off-balance-sheet items are $75 million. Tier 1
Please indicate which items appearing on the following financial statements would be classified under the terms of the regulatory requirement for (a ) Tier 1 capital or (b ) Tier 2 capital.
Under the terms of the Original Basel Agreement, what risk weights apply to the following on-balance-sheet and off-balance-sheet items? Residential real estate loans ...... Credit card loans Cash................ Standby letters of credit for municipal Commercial loans ......... bonds
Using the following information for Gold Star National Bank, calculate that bank€™s ratios of Tier 1 capital-to-risk-weighted assets and total-capital-to-risk-weighted assets. Does the bank have sufficient capital according to BaselI?
Please calculate Red River National Bank’s total risk-weighted assets, based on the following items that the bank reported on its latest balance sheet. Does the bank appear to have a capital deficiency?Cash............. $ 75 millionDomestic interbank deposits.... 130 millionU.S. government
Suppose Red River National Bank, whose balance sheet is given in problem 5, reports the forms of capital shown in the following table as of the date of its latest financial statement. What is the total dollar volume of Tier 1 capital? Tier 2 capital? Calculate the Tier 1 capital-to-risk-weighted-
Richman Savings Association has forecast the following performance ratios for the year ahead. How fast can Richman allow its assets to grow without reducing its ratio of equity capital to total assets, assuming its performance holds reasonably steady over the period?Profit margin of net income over
Using the formulas developed in this chapter and in Chapter 6 and the information that follows, calculate the ratios of total capital to total assets for the banking firms listed below. What relationship among these banks€™ return on assets, return on equity capital, and capital-to-assets
Over the Hill Savings has been told by examiners that it needs to raise an additional $8 million in long-term capital. Its outstanding common equity shares total 5.4 million, each bearing a par value of $1. This thrift institution currently holds assets of nearly $2 billion, with $135 million in
In what ways does the lending function affect the economy of its community or region?
What are the principal types of loans made by banks?
What factors appear to influence the growth and mix of loans held by a lending institution?
What is the CAMELS rating and how is it used?
What are some warning signs to management that a problem loan may be developing?
A lender's cost accounting system reveals that its losses on real estate loans average 0.45 percent of loan volume and its operating expenses from making these loans average 1.85 percent of loan volume. If the gross yield on real estate loans is currently 8.80 percent, what is this lender's net
Why is lending so closely regulated by state and federal authorities?
What should a good written loan policy contain?
What are the typical steps followed in receiving a loan request from a customer?
What three major questions or issues must a lender consider in evaluating nearly all loan requests?
Explain the following terms: character, capacity, cash, collateral, conditions, and control.
Suppose a business borrower projects that it will experience net profits of $2.1 million, compared to $2.7 million the previous year, and will record depreciation and other noncash expenses of $0.7 million this year versus $0.6 million last year. What is this firm’s projected cash flow for this
What sources of information are available today that loan officers and credit analysts can use in evaluating a customer loan application?
What are the principal parts of a loan agreement? What is each part designed to do?
What is loan review? How should a loan review be conducted?
What steps should a lender go through in trying to resolve a problem loan situation?
The lending function of depository institutions is highly regulated and this chapter gives some examples of the structure of these regulations for national banks. In this problem you are asked to apply those regulations to Red Rose National Bank (RRNB). Red Rose has the following sources of funds:
Motivation Corporation, seeking renewal of its $12 million credit line, reports the data in the following table (in millions of dollars) to Hot Springs National Bank€™s loan department. Please calculate the firm€™s cash flow as defined earlier in this chapter. What trends do you
Parvis Manufacturing and Service Company holds a sizable inventory of dryers and washing machines, which it hopes to sell to retail dealers over the next six months. These appliances have a total estimated market value currently of $30 million. The firm also reports accounts receivable currently
Under which of the six Cs of credit discussed in this chapter does each of the following pieces of information belong?The particular C of credit represented by each piece of information presented in this problem was as follows:a. First National Bank discovers there is already a lien against the
Butell Manufacturing has an outstanding $11 million loan with Citicenter Bank for the current year. As required in the loan agreement, Butell reports selected data items to the bank each month. Based on the following information, is there any indication of a developing problem loan? About what
Identify which of the following loan covenants are affirmative and which are negative covenants:a. Nige Trading Corporation must pay no dividends to its shareholders above $3 per share without express lender approval.b. HoneySmith Company pledges to fully insure its production line equipment
Please identify which of the basic Cs of lending—character, capacity, cash, collateral, conditions, and control—applies to each of the loan factors listed here:Insurance coverage......... Asset liquidation Competitive climate for customer’s product. Inflation outlook Credit rating
What special problems does business lending present to the management of a business lending institution?
What are the essential differences among working capital loans, open credit lines, asset-based loans, term loans, revolving credit lines, interim financing, project loans, and acquisition loans?
What aspects of a business firm's financial statements do loan officers and credit analysts examine carefully?
What aspect of a business firm's operations is reflected in its ratio of cost of goods sold to net sales? In its ratio of net sales to total assets? In its GPM ratio? In its ratio of income before interest and taxes to total interest payments? In its acid-test ratio? In its ratio of before-tax net
What are contingent liabilities, and why might they be important in deciding whether to approve or disapprove a business loan request?
What is cash-flow analysis, and what can it tell us about a business borrower’s financial condition and prospects?
Should a loan officer ever say “no” to a business firm requesting a loan? Please explain when and where.
What methods are used to price business loans?
Suppose a bank estimates that the marginal cost of raising loanable funds to make a $10 million loan to one of its corporate customers is 4 percent, its nonfunds operating costs to evaluate and offer this loan are 0.5 percent, the default-risk premium on the loan is 0.375 percent, a term-risk
What are the principal strengths and weaknesses of the different loan-pricing methods in use today?
What is customer profitability analysis? What are its advantages for the borrowing customer and the lender?
What is a pro forma statement of cash flows, and what is its purpose?
From the descriptions below please identify what type of business loan is involved.a. A temporary credit supports construction of homes, apartments, office buildings, and other permanent structures.b. A loan is made to an automobile dealer to support the shipment of new cars.c. Credit extended on
As a new credit trainee for Evergreen National Bank, you have been asked to evaluate the financial position of Hamilton Steel Castings, which has asked for renewal of and an increase in its six-month credit line. Hamilton now requests a $7 million credit line, and you must draft your first credit
From the data given in the following table, please construct as many of the financial ratios discussed in this chapter as you can and then indicate what dimension of a business firm€™s performance each ratio represents.
Grape Corporation has placed a term loan request with its lender and submitted the following balance sheet entries for the year just concluded and the pro forma balance sheet expected by the end of the current year. Construct a pro forma Statement of Cash Flows for the current year using the
Blue Jay Corporation is a new business client for First Commerce National Bank and has asked for a one-year, $10 million loan at an annual interest rate of 6 percent. The company plans to keep a 2.75 percent, $3 million CD with the bank for the loan’s duration. The loan officer in charge of the
As a loan officer for Allium National Bank, you have been responsible for the bank€™s relationship with USF Corporation, a major producer of remote-control devices for activating television sets, DVDs, and other audio-video equipment. USF has just filed a request for renewal of its $10
In order to help fund a loan request of $10 million for one year from one of its best customers, Lone Star Bank sold negotiable CDs to its business customers in the amount of $6 million at a promised annual yield of 2.75 percent and borrowed $4 million in the Federal funds market from other banks
Many loans to corporations are quoted today at small risk premiums and profit margins over the London Interbank Offered rate (LIBOR). Englewood Bank has a $25 million loan request for working capital to fund accounts receivable and inventory from one of its largest customers, APEX Exports. The
Five weeks ago, Robin Corporation borrowed from the commercial finance company that employs you as a loan officer. At that time, the decision was made (at your personal urging) to base the loan rate on below-prime market pricing, using the average weekly Federal funds interest rate as the money
Eagle Corporation has posted an average deposit balance this past month of $325,000. Float included in this one-month average balance has been estimated at $50,000. Required legal reserves are 3 percent of net collected funds. What is the amount of net investable (usable) funds available to the
What are the principal differences among residential loans, nonresidential installment loans, noninstallment loans, and credit card or revolving loans?
How do credit-scoring systems work?

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Financial Accounting For Undergraduates 4th Edition Wallace - Solutions

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