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E Consumer Loans $15,000.00 Capital 2,000.00 Total Assets $25,000.00 Total Liab & NW $20,000.00 Therefore, you need to start over assuming a liability management bank. Determine the new equilibrium balance sheet and proforma income statement. Demand function for agriculture loans (LA) TA = 13.00% - .0005LA TRA = rL =13LA -.0005LA dTRA = 13.00-.001LA = dLA % LA=$ TA= Demand for function for consumer loans (LC) rc = 9.00% - .0002Lc TRe = rLc =9.00L -.0002Lc dTRC = 9.00-.0004Lc = dLc Lc=$ rc= o/ Supply function for demand deposits (DD) D = -4.00% + .0004375DD TCD = rDD = -4.00DD +.0004375DD dTCD =-4.00+.000875DD = % dLD DD= $ rD= % Supply function for time deposits (DT) IT = 0.00 + .00015DT TC =rD =0.00D +.00015D,2 dTCT = 0.00 + .0003DD = dLT DT= S IT= Bank of Milan, Tennessee Statement of Financial Conditions (pro forma) October 1, 2019 Assuming an Liability Management Bank U.S. Treasury Securities $ Demand Deposits $ Agriculture Loans $ Time Deposits S EuroDollars $As an intern with the Bank of Milan, Tennessee, you have observed that this bank makes two types of loans, agriculture loans and consumer loans, and offers two types of deposits, demand deposits and time deposits. You have determined that your bank is not an asset management bank but is a liability management bank, where core deposits plus capital are less than demand for loans. Thus your bank needs to acquire money market funds in the Eurodollar market at a cost of 3.15 percent. If your bank were an asset management bank, you would invest your excess fund in treasury securities that yield an annual rate of 3.00 percent. Your bank has $2,000 in capital. The first part of this problem, using the Demand/supply functions, proves that your bank is a liability management bank. Demand function for agriculture loans (LA) TA = 13.00% - .0005LA TRA = rL =13L, -.00051, dTRA = 13.00-.001L, = 3.00 dL LA=$10,000 rA= 8.0%_ Demand for function for consumer loans (LC) rc = 9.00% - .0002Lc TRC =rLc =9.00Lc -.0002L'c dTRC = 9.00-.0004Lc =.0300 dLc Lc=$15,000_rc= _6.00%_ Supply function for demand deposits (DD) I'D= -4.00% + .0004375DD TCD = rDD = -4.00DD +.0004375DD dTCD = -4.00+.000875D, = 3.00% dLD DD= $8,000 ID= =0.50% Supply function for time deposits (DT) IT = 0.00 + .00015DT TC, = rD, =0.00D, + .00015D,2 dTCT = 0.00 +.0003D, = 3.00 dLT DT= $10.000 IT= 1.50% Statement of Financial Conditions (pro forma) October 1, 2019 Assuming an Asset Management Bank U.S. Treasury Securities $0_ Demand Deposits $8,000.00 Agriculture Loans $10.000.00_ Time Deposits $10,000.00Consumer Loans 3% Capital 2,000.00 Total Assets 3 Total Liab & NW 5 Income Statement (pro forma) October 1, 2019 September 30, 2020 Assume all rates and balances remain constant for the next year (2020 Fiscal Year) Revenues Interest on Treasury Securities _ 5 Interest on AgCulture Loans m $ Interest on Consumer Loans $ Total Interest Revenue 3 Interest Expense Interest on Demand Deposits 3 Interest on Time Deposits Interest on EuroDollars $ Total Interest Expense 5 Net Interest Revenue