User Account

All Pages

What will be the net interest income for the second year

Assignment Help Financial Accounting
Reference no: EM131824596

A financial institution has the following market value balance sheet structure:

Assets                                                                                    Liabilities and Equity

Cash            $1,000                                                             Certificate of deposit              $10,000

Bond           $10,000                                                           Equity                                        $1,000

Total assets $11,000                                                         Total liabilities and equity      $11,000

a. The bond has a 10-year maturity, a fixed-rate coupon of 10 percent paid at the end of each year, and a par value of $10,000. The certificate of deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects no additional asset growth. What will be the net interest income (NII) at the end of the first year?

b. If at the end of year 1 market interest rates have increased 100 basis points (1 percent), what will be the net interest income for the second year? Is the change in NII caused by reinvestment risk or refinancing risk?

c. If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower than $1,000? Why?

Reference no: EM131824596

Questions Cloud

What are the parameters of the distribution : Is X + Y a gamma random variable? If so, what are the parameters of the distribution?
What type of relationship do you think fema have in future : What type of relationship do you think FEMA and the DHSshould have in the future regarding the rebuilding of the nation's all-hazards emergency ?
Define problems that arise when implementing the tax : Economists have found that increasing the proportion of girls in primary and secondary school leads to significant improvement in students' cognitive outcomes.
What is the current value of the euro-denominated : What is the current value of the CD principal and What is the current value of the euro-denominated loan principal
What will be the net interest income for the second year : If market interest rates had decreased 100 basis points by the end of year 1, would the market value of equity be higher or lower
Find the mean and variance of x : The moment generating function for a random variable X is MX(t) = e-?+?et. Find the mean and variance of X.
Why do not the beekeepers pay the fruit farmers : In the example of honeybees, we said that the farmers pay the beekeepers for pollination services. But why don't the beekeepers pay the fruit farmers?
Describe what clarification do you need regarding posting : Describe what clarification do you need regarding the posting? I have a few minutes before I have to leave,' she says. Go ahead.
Find the mean and variance of x : The moment generating function for a random variable X is MX(t) = eat+ßt2/2. Find the mean and variance of X.

Reviews

Write a Review

Financial Accounting Questions & Answers

  Which investment should the corporation make

It can invest in tax-exempt bonds that pay 4.5 percent interest or it can invest in taxable bonds that pay 6 percent interest. Which investment should the corporation make?

  Calculate the incremental profit or loss

Calculate the incremental profit or loss associated with accepting the New England Investments group and what was the opportunity cost of accepting the New England Investments group?

  What is the standard cost for direct materials per pendant

Jody Jewelry manufactures jewelry. In October Jody is planning to make 500 rings, 400 bracelets, and 210 pendants. Each ring requires 3 ounces of gold and 2 semi-precious stones. What is the standard cost for direct materials per pendant?

  Costs constitutes direct material in an iron foundry

Which of the following costs constitutes a direct material in an Iron Foundry? Which of the following is a variable cost? The second stage in an ABC costing system is to compute: Activity pools are:

  What will be bruners cost of funds if the company decided

Bruner Aeronautics has preferred stock outstanding with a par value of $100. The stock pays a quarterly dividend of $2 and has a current price of $80. What will be Bruner's cost of funds if the company decided to issue new preferred stocks?

  Post-balance-sheet events

(Post-Balance-Sheet Events) Madrasah Corporation issued its financial statements for the year ended December 31, 2014, on March 10, 2015. The following events took place early in 2015. On January 10, 10,000 shares of $5 par value common stock were is..

  Company monthly net operating income of change

Salley Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 200 100 % Variable expenses 40 20 % Contribution margin 160 80 % Fixed expenses are $1,213,000 per month. Wha..

  Summary analysis of the business options selecting optimum

summary analysis of the business options selecting optimum business portfolio.the date is july 2009 just prior to qaim

  Identify main internal control weakness in given situation

Identify the main internal control weakness in this situation, state how the weakness can hurt Fast Pass, and propose a way to correct the weakness.

  What is the name given to the probability distribution

What is the name given to the probability distribution that has the greatest chance of applying to this situation

  What is abercrombie and fitchs receivables turnover

Using the balances reported on the balance sheets, what is Abercrombie & Fitch's receivables turnover for the year ended February 3, 2007?

  Create he journal entry to record the purchase of treasury

Create he journal entry to record the purchase of treasury stock by the cost method. 5,000 shares of treasury stock are reissued at $33 per share. Prepare the journal entry to record the reissuance by the cost method.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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