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Consider the following bank balance sheet (fixed rates and pure discount securities unless indicated otherwise). Interest rates on liabilities are 10 percent and on assets are 12 percent. (See link for data) a. What is the duration of assets, DA, liabilites, DL, and Equity, E. b. The bank will benefit or be hurt if all interest rates rise (assume by the c. Compute the repricing gap for the bank using those assets and liabilities repricing or maturing in 2 years or less. From this information, will the bank be hurt or benefit by a 200 basis point rise in interest rates on assets and liabilities? d. If the bank gets an additional $100 in a 6-month certificate of deposit, what investments (using the above portfolio possibilities) should it make to control interest rate risk (? y = ï¿1⁄2 200 basis point change in all interest rates) by changing the duration of its portfolio? State the advantages and disadvantages of using net worth immunization and asset/liability duration as a means of controlling interest rate risk. Define your terms.
Consider two stocks. If all their characteristics remain the same except for the correlation coefficient, which value of the correlation would make a portfolio of these two stocks the least risky?
nternal customers in organizations, Distribution resource planning (DRP), Electronic data interchange (EDI), Stocktaking, inventory policy, Shelf life of products, Limited storage space
An investor in Treasury securities expects inflation to be 1.9% in Year 1, 2.85% in Year 2, and 3.9% each year thereafter. Assume that the real risk-free rate is 2.3%, and that this rate will remain constant. Three-year Treasury securities yield 6.05..
A company and a bank sign an agreement where the bank agrees to provide loans when the company requires them. This agreement is called a line of credit. What characteristics of the agreement and the bank will cause the company to change its payment l..
If an organization's non operating and operating activities are profitable in a given year, which of the following statements is most correct?
The annual provision for bad debt is recorded as 5% of ending A/R (317,420). Use the allowance method. Round to the nearest $1. Interest has accrued at 6.5% on the long-term notes payable (1,200,000) since July 1 of this year.
Replicating portfolios: Stock ABC is currently trading at $20. There is a 60% real-world probability that six months in the future the price will go up to $23. There is a 40% real-world probability that six months in the future the price will go down..
You are negotiating for the terms of a legal settlement, and your opponent’s attorney has presented you with the following alternative settlement alternatives: f you deposit $100 in the bank today at an annual rate of 5.5% compounded annually, how lo..
Calculating yields. Assume you purchased a corporate bond at its current market price of $850 on January 2, 2002. It pays 9 percent interest and it will mature on December 31, 2011, at which time the corporation will pay you the face value of $1,000.
You can buy a $50 savings bond today for $25 and redeem the bond in 10 years for its full face value of $50. You could also put your money in a money market account that pays 7% interest per year. Which option is better, assuming they are of equal ri..
A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, then at a constant rate of 8% thereafter. The company's stock has a beta of 1.25, the..
The ABC Company has gathered the following information about the cash flows associated with a capital budgeting opportunity. The Project will cost $10,000,000 to implement, and has a three year estimated economic life. What are the annual net cash fl..
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