Question

In: Finance

Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities. Total assets...

Banque Langenberg holds $400 million of interest-sensitive assets and $325 million of interest-sensitive liabilities.
Total assets are $500 million.
Interest-sensitive assets (millions) $ 400
Interest-sensitive liabilities (millions) $ 325
Total assets $ 500
$ interest sensitive gap $75
Relative interest sensitive gap 15%
Interest sensitive ratio 1.23
What is the initial $ interest-sensitive gap?
What is the initial relative interest-sensitive gap?
Now change the assumptions. Boosting interest-sensitive assets to $600 million and interest-sensitive
liabilities to $400 million. Total assets are now $700 million.
What is the new $ interest-sensitive gap?
What is the new relative interest-sensitive gap?

Solutions

Expert Solution

What is the initial $ interest-sensitive gap?

The value of initial $ interest-sensitive gap is determined as below:

Initial $ Interest-Sensitive Gap = Interest-Sensitive Assets - Interest-Sensitive Liabilities

Here, Interest-Sensitive Assets = $400 million and Interest-Sensitive Liabilities = $325 million

Using these values in the above formula, we get,

Initial $ Interest-Sensitive Gap = 400 - 325 = $75 million

______

What is the initial relative interest-sensitive gap?

The value of initial relative interest-sensitive gap is arrived as follows:

Initial Relative Interest-Sensitive Gap = Initial $ Interest-Sensitive Gap/Total Assets = 75/500 = 15%  

______

What is the new $ interest-sensitive gap?

The value of new $ interest-sensitive gap is calculated as below:

New $ Interest-Sensitive Gap = New Interest-Sensitive Assets - New Interest-Sensitive Liabilities

Here, New Interest-Sensitive Assets = $600 million and New Interest-Sensitive Liabilities = $400 million

Using these values in the above formula, we get,

New $ Interest-Sensitive Gap = 600 - 400 = $200 million

______

What is the new relative interest-sensitive gap?

The value of new relative interest-sensitive gap is arrived as follows:

New Relative Interest-Sensitive Gap = New $ Interest-Sensitive Gap/New Total Assets = 200/700 = 28.57%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

10. A finance company has rate-sensitive assets of $20 million and rate-sensitive liabilities of $15 million....
10. A finance company has rate-sensitive assets of $20 million and rate-sensitive liabilities of $15 million. Should it be an interest-rate swap buyer (and make fixed-rate payments) or seller (and make variable-rate payments). Explain. 11. A bank has assets with an average duration of 3 years and liabilities with an average duration of 1.5 years. Should it be an interest-rate swap buyer (and make fixed-rate payments) or seller (and make variable-rate payments)? Explain. 12. A bank has a 4-year $30...
Assets Liabilities Rate-Sensitive $375 million Rate-Sensitive $450 million Fixed-rate $525 million Fixed-rate $450 million What would...
Assets Liabilities Rate-Sensitive $375 million Rate-Sensitive $450 million Fixed-rate $525 million Fixed-rate $450 million What would happen to bank profits if the interest rates in the economy decrease by 2%? Specifically, would the profits increase or decrease?  How much?
If a bank has more rate-sensitive assets than liabilities, a fall in interest rates will reduce...
If a bank has more rate-sensitive assets than liabilities, a fall in interest rates will reduce bank profits, while a rise in interest rates will raise bank profits. Pl elaborate this statement. Thanks
1. A given bank has the following interest‐sensitive assets and liabilities on its balance sheet (in...
1. A given bank has the following interest‐sensitive assets and liabilities on its balance sheet (in $ millions). If the interest rate rises by 1.5%, what is the change of profit? Interest rate sensitive assets Interest rate sensitive liabilities Short term securities $150 Deposits $659 Loans $575 2 Based on the answer to the previous question, should the bank be concerned about a decrease in interest rates? No. Decrease is favorable to the bank because it has a negative interest...
In 2016, the Allen Corporation had sales of $60 million, total assets of $50 million, and total liabilities of $16 million.
In 2016, the Allen Corporation had sales of $60 million, total assets of $50 million, and total liabilities of $16 million. The interest rate on the company's debt is 5.7%, and it's tax rate is 35%. The operating profit margin is 13%.Please answer: a. Compute the firm's 2016 net operating income and net income.b. Calculate the firm's operating return on assets and return on equity. (Hint: You can assume that interest must be paid on all of the firm's liabilities.)
Total assets are $14.2million, while sales are $19.2million, and total liabilities are $5 million. Profit margin...
Total assets are $14.2million, while sales are $19.2million, and total liabilities are $5 million. Profit margin equals 10%. Requirement 1: What is net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)   Net income $    Requirement 2: What is ROA? (Do not round intermediate calculations. Enter your answer as a percent rounded 2 decimal places (e.g., 32.16).)   ROA % Requirement 3: What is ROE? (Do not round intermediate calculations. Enter your answer...
Rock construction has current assets of 45 million, total liabilities and equity of 67 million, and...
Rock construction has current assets of 45 million, total liabilities and equity of 67 million, and sales of 59 million. How would current assets be expressed on a common size balance sheet?
A closed-end fund has total assets of $450 million and liabilities of $250,000. Currently, 25 million...
A closed-end fund has total assets of $450 million and liabilities of $250,000. Currently, 25 million shares are outstanding. What is the NAV of the fund? If the shares currently sell for $18.15, what is the premium or discount on the fund? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the NAV answer to 2 decimal places. Enter the premium or discount as a percent rounded to 2 decimal places.) Net asset...
Q1： The total assets and the total liabilities of a business at the beginning and at...
Q1： The total assets and the total liabilities of a business at the beginning and at the end of the year appear below. During the year, the corporation paid cash dividends of $24,000 and the stockholders made an additional investment of $15,000. Assets   Liabilities Beginning of year $395,000 $190,000 End of year 555,000 320,000 The amount of net income or net loss for the year was Group of answer choices net income of $54,000. net income of $30,000. net loss...
Palawan Financing has total assets worth $900 million and total liabilities worth $475 million at the end of December 31, 2016
34. Palawan Financing has total assets worth $900 million and total liabilities worth $475 million at the end of December 31, 2016. What is the amount of money received by the stockholders, if Palawan Financing liquidates all of its assets for $850 and pays off all of its outstanding debt?a.$850 millionb.$475 millionc.$1,325 milliond.$425 millione.$375 million43. Anton is considering putting money in an investment plan that will pay him $52,000 in 12 years. If Anton's opportunity cost rate is 7 percent...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT