1. Consider a bank has the following assets and liabilities:
- Loans of $100 million with a realized rate of 5%
- Security holdings of $50 millionearning 10% interest
- Reserves of $10 million
- Savings account of $100 million paying interest of 2.5%
- Checking deposits of $30 million which pay no interest
A. Set up the balance sheet for this bank
B. Determine ROA for this bank
C. Determine ROE for this bank
D. Suppose this bank calls in $10 million of it's good loans and writes off another $10 million of loans that turn out to be in default. What happens to this banks ROA and ROE?
E. Do you see any problems for this bank as a result of the actions taken in part D above? Explain carefully and fully.
1. Consider a bank has the following assets and liabilities:
- Loans of $100 million with a realized rate of 5%
- Security holdings of $50 millionearning 10% interest
- Reserves of $10 million
- Savings account of $100 million paying interest of 2.5%
- Checking deposits of $30 million which pay no interest
A. Set up the balance sheet for this bank
B. Determine ROA for this bank
C. Determine ROE for this bank
D. Suppose this bank calls in $10 million of it's good loans and writes off another $10 million of loans that turn out to be in default. What happens to this banks ROA and ROE?
E. Do you see any problems for this bank as a result of the actions taken in part D above? Explain carefully and fully.
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Related questions
1. If the bank suffers the deposit outflow of $6 million, what will its balance now look like? Suppose that the First National Bank has the following balance sheet position and that the required reserve ratio is 20 percent.
| Assets | Liabilities | ||
| Reserves | $25 million | Deposits | $100 million |
| Loans | $75 million | Bank Capital | $10 million |
| Securities | $10 million | ||
Show this by filling in the amounts in the following balance sheet:
4. If, after selling off securities, the bank is not hit by another $10 in withdrawals of deposits and it sells off all its securities to obtain reserves, what will the balance sheet look like?
| Assets | Liabilities | ||
| Reserves | Deposits | ||
| Loans | Bank Capital | ||
| Securities | |||
6. Using the beginning balance sheet for First National Bank and assuming that First National bank has a net profit after tax of $1,650,000
Calculate First National Bankâs Return on Assets (ROA)
Calculate First National Bankâs Equity Multiplier (EM)
Using the info in a and b, calculate First National Bankâs Return on Equity (ROE).
1). All of the following statements are false except
an investment bank is a financial firm that assists organizations in raising funds.
a corporation often deposits excess cash in an investment bank.
an investment bank provides checking services for large corporations.
most investment banks help investors buy and sell a corporation's stock.
under current laws, an investment bank provides services to individuals but cannot provide banking services to corporations.
2). (TCO 5) Dave Harris has just purchased a bond with a face value of $1,000 that pays 6%. The purchase price of the bond was $900, and the bond will mature in 5 years. What is the yield to maturity for this bond?
| 5.5% |
| 6.0% |
| 9.0% |
| 8.4% |
| 9.8% 3) (TCO 5) A characteristic of serial bonds is that they
|
12). (TCO 7) Marion would be acting in the capacity of a(n) _____ if she is selected to manage the assets of her 16-year-old niece until the niece reaches the age of 21.
| executrix |
| trustee |
| guardian |
| beneficiary |
| administrator |