Calculate The Difference Between Assets And Liabilities Of Financial Institution

Question

1. An FI has assets of $800 million and liabilities of $740 million.

a. What is the balance sheet capital?
      a. ‑$60 million; b. $60 million; c. $740 million; d. $800 million; e. This question cannot be answered without information about of balance sheet assets and liabilities.

b. If the FI bought call options on bonds with a face value of $50 million, what is the minimum amount of the stockholder's true net worth?
    a. $10 million; b. $70 million; c. $110 million; d. $790 million; e. $850 million.

c. If the FI had contingent assets of $40 million and contingent liabilities of $160 million, calculate the stockholder's true net worth.
    a. ‑$60 million; b. $60 million; c. $70 million; d. ‑$160 million; e. $190 million.

2. Sun Bank has issued a one-year $5 million loan commitment to a customer for an up-front fee of 15 basis points and at a fixed rate of 12 percent. The back-end fee for non-usage of the commitment is 5 basis points. The bank requires a 10 percent compensating balance in demand deposits. Reserve requirements on demand deposits are 10 percent.

a. What is expected return on the loan to the bank if 50 percent of the loan is drawn? Do not take future values of fee or interest income received.
    a. 13.45 percent; b. 13.57 percent; c. 13.60 percent; d. 13.72 percent; e.  13.90 percent.

b. What is the expected return on the loan at the end of the year if 50 percent of the loan is drawn? Estimate using future values of fee and interest income received, that is, return is defined as all fee and interest income earned at year-end as a percentage of funds used. Assume the cost of funds to the bank is 8 percent.
    a. 13.45 percent; b. 13.57 percent; c. 13.60 percent; d. 13.72 percent; e. 13.90 percent.

c. What is the expected return on the loan to the bank if 50 percent of the loan is drawn and there are no reserve requirements on demand deposits? Do not take future values of fees or interest income received.
    a. 13.45 percent; b. 13.57 percent; c. 13.60 percent; d. 13.72 percent; e. 13.90 percent.

d. What is the expected return on the loan to the bank if 50 percent of the loan is drawn using discounted cash flows? That is, the return has to be estimated at the beginning of the loan period using present values. Assume there are reserve requirements of 10 percent on demand deposits.
    a. 12.00 percent; b. 12.26 percent; c. 12.59 percent; d. 13.01 percent; e. 13.26 percent.

e. Assume 50 percent of the loan is drawn and that there are reserve requirements of 10 percent on demand deposits. What should the bank charge as back-end fees if they require an expected return of 13.63 percent? Do not take future values of fees or interest income received.
    a. 5 basis points; b. 10 basis points; c. 15 basis points; d. 20 basis points; e. 25 basis points.

Summary

These short questions belong to Finance and. The 1st question is about the difference between the assets and liabilities of a financial institution. The 2nd question is about a bank giving out a loan commitment to a customer for basis points. The expected return for the loans needs to be calculated.

Total Word Count 146

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Comments

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