What will be the total asset size of the di

Assignment Help Finance Basics
Reference no: EM131633612

Question: A DI has assets of $10 million consisting of $1 million in cash and $9 million in loans. It has core deposits of $6 million. It also has $2 million in subordinated debt and $2 million in equity. Increases in interest rates are expected to result in a net drain of $1 million in core deposits over the year.

a. The average cost of deposits is 2 percent and the average cost of loans is 5 percent. The DI decides to reduce its loan portfolio to offset this expected decline in deposits. What is the cost and what will be the total asset size of the firm from this strategy after the drain?

b. If the cost of issuing new short-term debt is 3.5 percent, what is the cost of offsetting the expected drain if it increases its liabilities? What will be the total asset size of the DI from this strategy after the drain?

Reference no: EM131633612

Questions Cloud

What proof do authors use to make their arguments : What is the research question posed by the author? Another option is to find the "purpose" of the article?
What technologies are being used and how effective are they : What are some current major issues and how is the industry addressing them? What technologies are being used? How effective are they? What are the issues?
How much is residual income : Question - The following selected data pertain to the Argent Division for last year: How much is residual income
What are the weaknesses of the gievn model : How have large banks solved the problem of choosing the optimal time period for repricing?
What will be the total asset size of the di : If the cost of issuing new short-term debt is 3.5 percent, what is the cost of offsetting the expected drain if it increases its liabilities?
Research and secure the sec 10-k annual report : You will be asked to select a company that is publically traded. You must research and secure the SEC 10-K Annual Report for the most recent year
How does the swiss case affect your decision : Does it reinforce it, challenge it, or have no impact on what you believe? Please answer in about 600 words
How problems can arise within the organizational structure : Write a 500-600 word, 2 page paper, identify and discuss the chain of command and how problems can arise within the organizational structure.
Explain the issues food banks : Please give four examples of and explain the issues food banks have experienced over the years. Explain a solution that can help us over come these issues.

Reviews

Write a Review

Finance Basics Questions & Answers

  which suffers the least percentage price decline

Which bond suffers the greatest percentage price decline? Why? Which suffers the least percentage price decline? Why?

  Projects in all organizations have associated risks the

projects in all organizations have associated risks. the risks can be minimized when you are certain of the outcome and

  What are the advantages of a bonded ultrasonic transducer

What is sometimes cited as a disadvantage? Can torque be used to tighten a 6 in. diameter bolt? If not, why not? Name two devices that are normally used to tighten bolts this size.

  The invention of the printing press

Before the invention of the printing press, books were copied by hand one at a time by illuminators, and the vellum was often embellished with beautiful calligraphy and intricate patterns and designs.

  Report showing practical application of strategic finance

Prepare a report showing the practical application of Strategic Finance

  Accounting practice distinguishes among different types of

accounting practice distinguishes among different types of accounting changes. identify three different types of

  Find the current value of a share

General Cereal common stock dividends have been growing at an annual rate of 7% per year over the last ten years. Current dividend is 1.70 each share.

  Calculate the abnormal return behavior

Aerotech, an aerospace-technology research Corporation, announced this morning that it has hired the world's most knowledgeable and prolific space researchers.

  What is the payback period for project

What is the payback period for each project? Which project would you accept based on the payback period and why? What is the discounted payback for each period? Which project would you accept based on the discounted payback criterion and why?

  What is the exercise price of the conversion feature

An investor come to you and states that she has the option of converting her $2000 XYZ Corporate Bond into 20.50 shares of XYZ common stock. If the XYZ Bond pays a coupon rate of 5.25%, has a call price of 105, and matures in 7 years, what is the ..

  Explain why the valuation models for a perpetual bond

Explain why the valuation models for a perpetual bond, preferred stock, and common stock with constant dividend payments (zero growth) are virtually identical?

  How can an equilibrium exist in which highly risky security

How can an equilibrium exist in which a highly risky security such as a put option offers an expected return below a much safer security such as a Treasury bill?

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