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Questions -
Q1) A bank with a leverage ratio of 20 has a cost of debt of 1.5%pa and a portfolio of assets with an expected yield of 3.5%pa. What are the expected ROA net of debt funding costs and the expected ROE of the bank, using the approach to defining leverage taken in the lecture slides? Show your workings.
Q2) What will the ROA and ROE actually be if the yield on assets turns out to be 3%? Show your workings.
Q3) What will the ROA and ROE actually be if the yield on assets turns out to be 1%? Show your workings.
Q4) Redo the above calculations in parts 1) and 3) for a leverage ratio of (i) 10 (ii) 30? What effect does a higher leverage ratio have on your answers? Show your workings.
Q5) What is the relationship between a bank's capital ratio and the risks and returns faced by (i) its depositors and (ii) its shareholders? Explain your answers.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
Write a report on Internal Controls
Prepare the bank reconciliation for company.
Create a cost-benefit analysis to evaluate the project
Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR
Distinguish between liquidity and profitability.
Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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