2. A bank has the following balance sheet. The loans have a 3-year maturity and earn...

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2. A bank has the following balance sheet. The loans have a 3-year maturity and earn 4.3% annually. The interest is paid once a year and the principal will not be repaid until maturity. The securities do not earn interest. The certificates of deposit (CDs) have a 1-year maturity. The bank must pay 2.4 % on the CDs. Liabilities & Equity Assets $600,000 2,000,000 700,000 $3,300,000 a. What is the net interest income (NI) for the bank at the end of the first year? (4 points) Cash $500,000 Demand deposits Certificates of deposit Equity $3,300,000 Total Liabilities & Equity Loans 2,000,000 Securities Total Assets 800,000 b. Suppose that interest rates are expected to increase by 60 basis points (0.6%) at the end of the first year. What will the NII be at the end of the second year? (4 points) c. If interest rates change as expected, the value of the bank's loans will decrease in value to $1,967,260 What will happen to the market value of the bank's equity? Why? (3 points) 2. A bank has the following balance sheet. The loans have a 3-year maturity and earn 4.3% annually. The interest is paid once a year and the principal will not be repaid until maturity. The securities do not earn interest. The certificates of deposit (CDs) have a 1-year maturity. The bank must pay 2.4 % on the CDs. Liabilities & Equity Assets $600,000 2,000,000 700,000 $3,300,000 a. What is the net interest income (NI) for the bank at the end of the first year? (4 points) Cash $500,000 Demand deposits Certificates of deposit Equity $3,300,000 Total Liabilities & Equity Loans 2,000,000 Securities Total Assets 800,000 b. Suppose that interest rates are expected to increase by 60 basis points (0.6%) at the end of the first year. What will the NII be at the end of the second year? (4 points) c. If interest rates change as expected, the value of the bank's loans will decrease in value to $1,967,260 What will happen to the market value of the bank's equity? Why? (3 points)

Answer rating: 100% (QA)

Net Interest Income NII at the End of 2000000 43 20000000 24 Solutio... View the full answer