A bank invested $50 million in a one-year asset paying 10 percent interest per year and...

A bank invested $50 million in a one-year asset paying 10 percent interest per year and simultaneously issued a $50 million, two-year liability paying 8 percent interest per year to pay for it. • Is the bank short funded or long funded? • What is the bank’s net interest income in year one • What will be the bank’s net interest income in year two if at the end of the first year all interest rates have decreased by 1.5 percent (150 basis points)?

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

1. If a bank invested $67 million in a two-year asset paying 12 percent interest per...

1. If a bank invested $67 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $67 million one-year liability paying 9 percent interest per year, what would be the impact on the bank’s net interest income if, at the end of the first year, all interest rates increased by 2 percentage point? (Input the amount as a positive value. Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places....

A bank has issued a one- year certificate of deposit for $50 million at an interest...

A bank has issued a one- year certificate of deposit for $50 million at an interest rate of 2 percent. With the proceeds, the bank has purchased a two- year Treasury note that pays 4 percent interest. a) What is the Bank's asset? b) What is the Bank's liability? c) What risk does the bank face in entering into these transactions? d) What would happen if all interest rates were to rise by 1 percent? Will the bank earn or...

Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest...

Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S dollars for euros is $1.104/ €1 a.Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the the euro ? b.What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S dollars for euros at the end of the year...

Bank USA recently purchased $11.7 million worth of euro-denominated one-year CDs that pay 10 percent interest...

Bank USA recently purchased $11.7 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is...

If 38,300 dollars is invested at an interest rate of 7 percent per year, find the...

If 38,300 dollars is invested at an interest rate of 7 percent per year, find the interest earned for the investment at the end of 5 years for the following compounding methods. (a) Annual: (b) Semiannual: (c) Monthly: (d) Daily:

Hands Insurance Company issued a $90 million, one-year note at 8 percent add-on annual interest (paying...

Hands Insurance Company issued a $90 million, one-year note at 8 percent add-on annual interest (paying one coupon at the end of the year) or with an 8 percent yield. The proceeds were used to fund a $100 million, two-year commercial loan with a 10 percent coupon rate and a 10 percent yield. Immediately after these transactions were simultaneously closed, all market interest rates increased 1.5 percent (150 basis points). a. What is the true market value of the loan...

Consider a 30-year U.S. bond paying 8 percent coupon. The interest is 10 percent. Find the...

Consider a 30-year U.S. bond paying 8 percent coupon. The interest is 10 percent. Find the bond’s Macaulay duration? Find the bond’s Modified duration.? If the interest rate falls by 10 basis points, what is the exact percentage change in the bond price? If the interest rate falls by 10 basis points, what is the approximate percentage change in the bond price?

Bank USA recently purchased $10 million worth of euro- denominated one-year CDs that pay 10 percent...

Bank USA recently purchased $10 million worth of euro- denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.30/€1. (LG 9-5) a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of...

Suppose you invest $1000 in an account paying 10% interest per year.

Suppose you invest $1000 in an account paying 10% interest per year. How much will you have in the account in 7 years? in 20 years? in 75 years?

Suppose you are invested in an (excellent) account that pays 50% interest per year, paid monthly....

Suppose you are invested in an (excellent) account that pays 50% interest per year, paid monthly. The account is closed to new investment, so you cannot reinvest the interest. Do you prefer this account to one that pays a single payment of 50% at the end of the year, rather than monthly? Why or why not? Explain your reasoning (you may wish to reference ideas like compounding, NPV, IRR, etc.)

Subjects