Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work. ( How a commercial bank’s value would be affected by an increase in economic growth?
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Q: Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs…
A: Given: Rate sensitive assets(RSA) = $150 Million Rate sensitive liabilities (RSL) = $140 Million…
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Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work. (
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How a commercial bank’s value would be affected by an increase in
economic growth ?
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Solved in 3 steps
- A)What is the amount of RSA, RSL and the income gap amount? B) Calculate the duration gap. C)What is the change in this bank’s net income if the interest rises by 1%, does it go up or does it go down? Show work D) What happens when the interest rises by 1% to this bank’s asset value, liability value and the net worth in dollar amounts? Show work.Based on the information above,(a) Do you agree that REC Bank’s net worth will increase when interest rate rises? Justify your answer with an appropriate analysis. (b) Evaluate the impact of reducing interest rate from 10 percent to 8 percent on the net worth of REC Bank.Suppose that some commercial bank has $100M in deposits and $20M in capital. Assuming a 10% minimum reserve ratio, what is the maximum amount of loans and securities this bank can own? (exclude inter-bank loans as a possibility for this question)
- Suppose a bank 's assets have an average duration of years, and its liabilities have an average duration of 5 years. Since this bank has a positive duration gap, in market interest rates will decrease bank capital. Select one: O 2: an increase 10; a decrease O 2: a decrease 10; an increaseThe total in rate sensitive assets for a financial institution is $120 million and the total in rate sensitive liabilities is $95 million. What is the cumulative pricing gap (CGAP) and what is the interest rate sensitivity gap ratio if total assets equals $195 million? What would the projected change to net income be if interest rates rose by 2% on both assets and liabilities? What would the projected change to net income be if interest rates declined by 2% on both assets and liabilities? What would the projected change to net income be if interest rates rose by 1.8% on assets and 1.5% on liabilities? What would the projected change to net income be if interest rates declined by 1.8% on assets and 1.5% on liabilities?Establish a finance plan that assumes the sales estimates at the take price level would have been increased by $500,000. This means that the current take price level of $9,170,000 would increase by $500,000. This change would offer more collateral to the bank, and the bank would then increase the GAP loan. The GAP loan requires 200% collateral in unsold rights. This change would impact the equity investment. Question: What would be the new equity investment be if the budget stays the same?
- Suppose you are the manager of a bank that has$15 million of fixed-rate assets, $30 million of ratesensitive assets, $25 million of fixed-rate liabilities,and $20 million of rate-sensitive liabilities. Conduct agap analysis for the bank, and show what will happento bank profits if interest rates rise by 5 percentagepoints. What actions could you take to reduce thebank’s interest-rate risk?If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratioSuppose Bank A has $35 million in rate-sensitive assets, $70 million in fixed rate assets, $70 million in rate sensitive liabilities, and $35 million in fixed rate liabilities and equity capital. What is the value of Bank A’s GAP?
- a firm wants to start a project. A team of financial analysts estimated the following cash flows; Year Cash flow 0 -$100000 1 $55000 2 $43000 3 $45000 1. Suppose the discount rate (interest rate) is 12%, what is the NPV? 2. Suppose that the discount rate (interest rate) is 12%, according to the calculation of NPV we should? 3. the payback period is? 4. Based on the payback period calculations and if the cut off point is 2 years, the project should? 5. Suppose that the discount rate (interest rate) is 12%, the profitability index (PI) is? 6. suppose that the discount rate (interest rate) is 12% based on the PI calculation, the project should?Imagine that a given investment bank generated a return on assets of 10% which lead to a doubling of bank capital. What was the asset to equity ratio in this bank? 0.5 10 5 1If rate-sensitive assets equal $600 million and rate-sensitive liabilities equals $800 million, what is the expected change in net interest income if rates increase by 1%? a. Net interest income will increase by $2 million. b. Net interest income will fall by $2 million. c. Net interest income will increase by $20 million. d. Net interest income will fall by $20 million. e. Net interest income will be unchanged. its an objective question