A bank reports the following items on its latest balance sheet: allowance for loan and lease losses $52 million; undivided profits $62 million; subordinated debt capital $8 million; common stock and surplus $26 million; equity notes $21 million; minority interest in 3subsidiaries $5 million; mandatory convertible debt $17 million; identifiable intangible assets $1 million; and noncumulative perpetual preferred stock $6 million. a) How much does the bank hold in Tier 1 capital? (3 Marks) b) How much does the bank hold in Tier 2 capital? (2 Marks) Question 2 Suppose a bank estimates that the marginal cost of raising loanable funds to make a $12 million loan to one of its corporate customers is 5 percent, its non-funds operating costs to evaluate and offer this loan are 0.6 percent, the default-risk premium on the loan is 0.385 percent, a term-risk premium of 0.615 percent is to be added, and the desired profit margin is 0.35 percent. a) Using the "Cost-Plus loan pricing model" calculate loan rate that should be quoted to this borrower? (5 marks) Question 3 Michael has asked for a 30-year mortgage to purchase a home at Leonardo's Historical Bank. The purchase price is $400,000, of which Michael must borrow $325,000 to be repaid in monthly installments. Michael is advised he can get this loan for an APR of 5.25 percent. a) Calculate the monthly mortgage rate if Michael gets this loan. (2 marks) b) Calculate the monthly repayments Michael needs to make. 

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Question 1 Bank Capital a Tier 1 Capital Common stock and surplus 26 million Mandatory convertible debt 17 million Noncumulative perpetual preferred stock 6 million Total Tier 1 Capital 26 million 17 ... View the full answer