A financial institution has the following balance sheet structure: Assets Cash $10 000 $50 000 $100...

 

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A financial institution has the following balance sheet structure: Assets Cash $10 000 $50 000 $100 000 T-bill: one-year (10%) T-Bond: three-year (10.5%) Corporate bond: 5-year annually floating rate (9%) $50.000 Total assets: $210 000 Liabilities and equity. Certificate of deposit: one-year (6%) $100 000 Debt securities: 3-year annually floating rate (7%) $100 000 $10 000 $210 000 Equity Total liabilities and equity Required: a) What will be the net interest income at the end of the first year? (5 marks) b) What will be the net interest income for the second year if at the end of year 1. market interest rates have decreased 100 basis points (1 per cent)? (5 marks) c) What is the repricing or funding gap if the planning period is one year? What is the impact over the next 365 days on net interest income if all interest rates fall by 100 basis points using repricing gap model? (5 marks) d) If the duration of assets is 3.5 years and the duration of liabilities is 2.2 years, what is the financial institution's duration gap? What is the impact over the next 365 days on market value of equity if all interest rates fall by 100 basis points using duration gap model? (5 marks) e) What variables are available to the financial institution to immunize the balance sheet? (5 marks) A financial institution has the following balance sheet structure: Assets Cash $10 000 $50 000 $100 000 T-bill: one-year (10%) T-Bond: three-year (10.5%) Corporate bond: 5-year annually floating rate (9%) $50.000 Total assets: $210 000 Liabilities and equity. Certificate of deposit: one-year (6%) $100 000 Debt securities: 3-year annually floating rate (7%) $100 000 $10 000 $210 000 Equity Total liabilities and equity Required: a) What will be the net interest income at the end of the first year? (5 marks) b) What will be the net interest income for the second year if at the end of year 1. market interest rates have decreased 100 basis points (1 per cent)? (5 marks) c) What is the repricing or funding gap if the planning period is one year? What is the impact over the next 365 days on net interest income if all interest rates fall by 100 basis points using repricing gap model? (5 marks) d) If the duration of assets is 3.5 years and the duration of liabilities is 2.2 years, what is the financial institution's duration gap? What is the impact over the next 365 days on market value of equity if all interest rates fall by 100 basis points using duration gap model? (5 marks) e) What variables are available to the financial institution to immunize the balance sheet? (5 marks)

Answer rating: 100% (QA)

To answer your questions lets calculate the net interest income and analyze the impact of interest rate changes using the given information a Net Interest Income at the end of the first year Net inter... View the full answer