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Exercise 1: Consider a financial institution with a mortgage pool with a total size of 200000...

Exercise 1: Consider a financial institution with a mortgage pool with a total size of 200000 USD. The loan to value ratio is 80 and 90 percent. The capital requirement is 8% The deposit insurance premium equals 0.45%. The reserve requirement ratio is 10%.

a) Calculate the capital requirements.

b) Calculate the reserve requirements.

c) Calculate the deposit insurance premium.

Solutions

Expert Solution

Loan to value ratio = Mortgage value / Appraised value of property =80/90

Appraised Value of property = (200,000/80)*90 = USD 225,000

1. Capital requirements = 8%*225,000 = USD 18,000

2. Reserve requirements = 10%*225,000 = USD 22,500

3. Deposit insurance premium = 0.45%*225,000 = USD 1012.5

jeff jeffy answered 2 years ago
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