What is bank change in net worth

Assignment Help Financial Management
Reference no: EM132059767

1. The Kromwell Community Bank's asset portfolio has an average duration of 6 years and its liability portfolio has an average duration of 2.5 years. The bank has $500 million in total assets and $450 million in liabilities. The Kromwell Community Bank is thinking about hedging its risk by using a Treasury Bond futures contract whose underlying's duration is 7.5 years and has a price of $98,000. How many futures contracts will it need to hedge its risk?

A. buy 2,381 contracts

B. sell 2,381 contracts

C. buy 2,551 contracts

D. sell 2,551 contracts

2. A bank has an average asset duration of 5 years and an average liability duration of 3 years. This bank has total assets of $500 million and total liabilities of $250 million. Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's change in net worth?

A. Net worth will decrease by $31.81 million.

B. Net worth will increase by $31.81 million.

C. Net worth will increase by $27.27 million.

D. Net worth will decrease by $27.27 million.

E. Net worth will not change at all.

Reference no: EM132059767

Questions Cloud

What is the difference between cash and bank reconciliation : What is difference between cash reconciliation and bank reconciliation? Are there any specific methods or rules that pertain to cash reconciliation
Compute the discounted payback period for project : Compute the discounted payback period for Project C.
Payback period years should project be accepted or rejected : Compute the payback period for Project A. Payback period years Should the project be accepted or rejected?
Find the ratio of cost change to the unit price : Use the chain rule to find the ratio of cost change to the unit price when p = 85.
What is bank change in net worth : Currently, market interest rates are 10 percent. If interest rates fall by 2 percent (to 8 percent), what is this bank's change in net worth?
Advise the company as to the preferable alternative : Albacore Limited is interested in acquiring the services of a highly qualified engineering professional. Advise the company as to the preferable alternative
Hypotheses of the mvt on the given interval : Verify that the given function f satisfies the hypotheses of the MVT on the given interval [a, b].
What is the nash-cournot eqilibrium : Derive the profit maximizing supply for a monopoly suppling demand in the industry - What is the operating profit for this firm
Bank leverage-adjusted duration gap : Currently, market interest rates are 5 percent. What will be this bank's leverage-adjusted duration gap?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the market risk premium

If the expected return on the market is 7 percent and the risk-free rate is 4 percent, What is the expected return for a stock with a beta equal to 0.65? What is the market risk premium?

  What is your rate of return on the fund

The fund's expense ratio is 2.5%. What is your rate of return on the fund if you sell your shares at the end of the year?

  Adopted the proposed change in capital structure

What is the current beta on MME's common stock? What would be the company's new cost of equity if it adopted the proposed change in capital structure?

  Calculate the operating cash flow for a firm

Calculate the Operating Cash Flow for a firm with $4 million total revenues, $3.5 million cost of goods sold, $500,000 depreciation expense, and $120,000 intere

  After the tax is imposed-what is the equilibrium quantity

The demand curve for two liter bottles of soda is given by QD=4000-300P, and the supply curve is given by QS=1300P. Before the tax was imposed, what was the equilibrium quantity? After the tax is imposed, what is the equilibrium quantity? How much re..

  What is the computed prices of its common stock

The Weatherfield Way Construction Company has common and preferred stock outstanding. What is the computed prices of its common stock?

  What is monthly payment that is beyond your means at time

What is the monthly payment that is beyond your means at this time? What should be the APR so that the monthly payment is $661.01?

  Smaller stocks have lower returns than larger stocks

On average, smaller stocks have lower returns than larger stocks? On average, Treasury bills have higher returns than stocks. Portfolios of smaller stocks are typically lss volatile than individual small stock

  How much was the firm taxable income

Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding th..

  Why does money have a time value

What annual contributions to this retirement fund are required for Una to achieve her objective and sleep well at night?

  Pays no dividend at the present time

Bill Bailey and Sons pays no dividend at the present time. The company plans to start paying an annual dividend in the amount of $.30 a share for two years commencing two years from today. After that time, the company plans on paying a constant $1 a ..

  What are the monthly payments if you only paid interest

You wish to buy a $14,000 dining room set. The furniture store offers you a five-year loan with a 11 percent APR. What are the monthly payments? What are the monthly payments if you only paid interest over the length of the loan and your principal ba..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd