A FI has assets of $10 million consisting of $1 million in cash and $9 million in
Question:
A FI has assets of $10 million consisting of $1 million in cash and $9 million in loans with an interest rate of 6%. On the loans the FI expect loan losses for 0.5% (N.B. assume no reserves for loan losses are recorded on b/s). The FI has core deposits of $6 million, on which the FI pays on average 1% of interest rates and subordinated debt of $2 million on which it pays an interest rate of 4% and equity of $2 million.
Compute the NI (net income)
Suppose that the interest rates on loans fall to 5%: compute the change in NI
How does the NI changes if following a recession the loan losses increase to 1.75%?
Calculate the change in NI if depositors were expected to withdraw $1 million of deposits and the FI had to raise the same amount in subordinated debt.
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella