Question
In: Finance
A bank is considering some investment portfolio shifting. In doing so, the bank is considering selling...
A bank is considering some investment portfolio shifting. In doing so, the bank is considering selling $10,000,000 in 3 year state government bonds with a coupon interest of 2 percent, and purchasing $10,000,000 in 3 year city government bonds with a coupon interest of 3 percent issued at par. The county bonds being sold are listed at par on the bank’s books but they have a current market value of $9,000,000
Assume that the bank’s corporate income tax rate is 35 percent.
(a) Calculate the TOTAL net effect on the bank’s earnings in the current full year resulting from the shift. (12 points)
(b) Calculate the dollar income tax impact for the bank in the current year. Your answer must also indicate whether this is a tax benefit or a tax liability. (3 points)
Solutions
Expert Solution
Use a spreadsheet for the ease in computations. Enter the values and the formulas in the spreadsheet as shown in the image below.
The obtained result is provided below.
jeff jeffy answered 1 year agoRelated Solutions
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purchasing $1,000,000 in 2 year county government bonds with a
coupon interest of 5 percent issued at par. The state bonds being
sold are listed at par on the bank’s books but they have a current
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This is so hard especially the BETA portfolio I cannot calculate. Your investment portfolio consists of...
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calculate.
Your investment
portfolio consists of the following stocks
Investment Portfolio
Name
Price
Beta
# shares
Dow Chemical
$ 59.72
1.34
15,000
Walmart
$ 69.32
0.19
3,000
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1.36
8,000
Verizon
$ 52.61
0.45
6,000
Consolidated Edison
$ 74.00
0.17
3,000
Caterpillar
$ 75.00
1.5
13,000
Deutsche bank
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1.4
9,000
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beta?
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