Reference no: EM131455937

The Best Bank has the following questions it would like to ask you about its bank. The bank’s balance sheet is as follows:

Assets:                                                                           Ave. Duration                 

Securities              2% rate            $200 million                2 year

Long-term Loans 5% rate           $ 800 million                5 years

      Total Assets                             $1000 million

Liabilities & Equity

Short-term Deposits 1% rate       $500 million               1 year

Certificates of Deposit 2% rate     400 million                2 year

      Total Liabilities                       $900 million

Equity                                               100 million

Total Liab.& Equity                      1000 million

a) What is the bank's net interest income and expected net interest margin?

b) If the bank has the NIM % that you calculated above, a PLL% of 0.50%, and a Burden % of 1.00%, what is the bank’s operating ROA before taxes

c) what is the equity multipler (EM) for the bank?

d) Using this equity multipler, what is the bank's operating ROE?

e) What is the bank's 1-year income (funding) gap (Rate sensitive Assets (RSA) for 1 year - rate sensitive liabilities (RSL) for 1 year?)

f) given this funding gap if rates go up by 1%, what is the expected change in the bank's NII $?

g) What is the bank's duration gap (D-gap)? (Duration of assets, Duration of Liabilities, and duration gap calculation)

h) What is the expected % change in the value of equity with a rise in rates of 1%?   Expected Change in Value of Equity = - D-GAP x {[(Chg rate / (1+ Ave loan rate)] ***(Use the weighted long-term loan rate as the average loan rate)