What has happened to the bank equity and leverage

Assignment Help Financial Management

Reference no: EM131337947

Assume that an investment bank is at its maximum desired leverage of 20: it has $10mil of its own equity (net worth) and has borrowed $190mil to buy assets of $200mil. The price of the bank's assets falls and reduces their mark-to-market value to $195mil. What has happened to the bank's equity and leverage? How much must the bank reduce their assets to restore leverage to its desired level? How will it affect the bank's efforts to return to their desired leverage if other financial institutions are attempting to de-lever at the same time?

Reference no: EM131337947

Questions Cloud

What is the maximum amount he will be able to borrow : An entrepreneur needs funds for a project. She has funds on her own, but enough to cover the required investment of $100. If the entrepreneur doesn't misbehave, the project will succeed with probability .9, yielding a gross return of 120 in one year...

Participate on the demand side of federal funding market : Assets Liabilities Cash = $110,000 DD = $2,000,000 rr = 10% Dep at Fed = $90,000 Treasury Bills = $100,000. 1. This bank will be able to expand its loan portfolio if. Under which of the following scenarios is this bank most likely to participate on t..

What percentage will the total value of your investment : You own 12 percent, or 15,000 shares, of Printers Ink stock that has a total market value of $678,300. By what percentage will the total value of your investment in this firm change if the company sells an additional 12,500 shares of stock at $43.50 ..

Dollar raised to complete the expansion : Oisen Outfitters Inc, believes that its optimal capital structure consist of 50% common equity and 50% debit, and its tax rate is 40%. Oisen must raise additional capital to fund its upcoming expansion. The firm will have $2 million of retained earni..

What has happened to the bank equity and leverage : Assume that an investment bank is at its maximum desired leverage of 20: it has $10mil of its own equity (net worth) and has borrowed $190mil to buy assets of $200mil. The price of the bank's assets falls and reduces their mark-to-market value to $19..

Partnership creditors receive any payment from such assets : Simmons, Hoffman, and Murray were partners doing business under the firm name of Simmons & Co. The firm borrowed money from a bank and gave the bank the firm’s note for the loan. In addition, each partner guaranteed the note individually. The bank cl..

Amount of annual payment that is going to pay off debt : In December 2013, Dayanara bought a new BMW 328i car for $ 70,000 and paid $ 8,000 in cash. It agreed with the XYZ Bank to pay the balance making equal annual payments in 6 years, at 9% interest. Determine the amount of the annual payment that is goi..

How much money would have accrued when he turned : As a savings plan to ensure your child's college education, a couple decides to deposit $ 100 a month into a bank account that pays interest at a rate of 6% per year compounded monthly. If the savings plan started when the child was 6 years old, how ..

Period largely owing to the demand from abroad : What would have happened to the money supply in the United States in the 1990s if the Federal Reserve had adhered to a policy of targeting monetary base growth of 3 percent each year regardless of the demand for currency? Note that currency growth av..

User Account

All Pages