FINS 3630 Week 4 Tutorial Questions.docx
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FINS 3630 Week 4 Tutorial QuestionsS2, 2012
1. NSW Bank reports that it holds $70 billion in (one-year) loans, $20 billion in Marketable Securities, and $10 billion in cash reserve. On the liability side of its accounts, it reports $95 billion in customer deposits.
(1) Assuming the bank has no other assets and liabilities, construct the bank’s balance sheet and find the bank’s total equity capital.
Assets LiabilitiesCash reserve: ____________ Deposits: __________
Securities: _____________ Equity Capital: _______________
Loans: ___________
(2) At the end of the first quarter of the year, the bank manager estimates that 1% of the loans have become uncollectible. What would the balance sheet look like at the end of the first quarter?
Assets Liabilities
Cash reserve: ________________ Deposits: _______________
Securities: ______________ Equity Capital: _____________
Loans: ______________
Less: Allowances for loan losses: ___________
(3) At the end of the year, the 1% of the loan is not repaid and the bank manager decides to charge off the loan. What should the balance sheet look like?
Assets Liabilities
Cash reserve: _______________ Deposits: _______________
Securities: ________________ Equity Capital: ______________
Loans: ________________
Less: Allowances for loan losses: _________
(4) Please fill in the numbers in the bank’s quarterly income statement at the end of the first quarter using the balance sheet in part (1) and the following interest–rate assumptions:
a. The average contract interest rate on the bank’s loans is 8 percent per annum (Hint: the interest rate would be 2 percent per quarter)
b. The average coupon interest rate on the bank’s securities is 4 percent per annum.c. The average explicit interest rate paid on the bank’s deposits is 2 percent per annum.
Interest Income: Loans: ________________ Securities: ___________________
Interest Expenses Interest on deposits: ___________________
Net Interest Income: ___________________Provision for loan losses: _________________
Net Income: ______________________
Chapter 13: Questions 2, 6, 9, 12, 13, 19, 20