azaz

Question #1:
A financial institution has the following market value balance sheet:
Assets                                          Liabilities and Equity
Cash $1,000                                Term Deposit $10,000
Bond $10,000                              Equity             $1,000
Total Assets $11,000                 Total Liabilities and Equity $11,000

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 term deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects no additional asset growth.
a. What will be the net interest income (NII) at the end of the first year?
Note: Net interest income equals interest income minus interest expense.

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. Assuming that market interest rates increase 1 percent, the bond will have
a value of $9,446 at the end of year 1. What will be the market value of the equity for the FI? Assume that all of the NII in part (a) is used to cover operating expenses or is distributed as dividends.

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

e. What factors have caused the change in operating performance and market
value for this firm?

Question #2:
Consider the assets (in millions) of two banks, A and B. Each bank is funded by $120 million in deposits and $20 million in equity. Which bank has the stronger liquidity position? Which bank probably has a higher profit?
Bank A Asset                                                          Bank B Assets
Cash $10                                                                  Cash $20
Govt. securities $40                                                  Consumer loans $30
Commercial loans $90                                              Commercial loans $90
Total Assets $140                                                     Total Assets $140

Question #3:
a) An insurance company’s projected loss ratio is 77.5 percent, and its loss
adjustment expense ratio is 12.9 percent. The company estimates that
commission payments will be 16 percent. What must be the minimum yield on
investments to achieve a positive operating ratio?

b) NOTE: This part of the problem is independent from part a) so do not consider
the information provided in part a) when answer part b).

What is the combined ratio for a property insurer who has a simple loss ratio of 73percent, a loss adjustment expense of 12.5 percent, and a ratio of commissions and other acquisition expenses of 18 percent? Also calculate what is the combined ratio adjusted for investment yield if the company earns an investment yield of 8 percent?

helpcourse

Post by azaz;3158479
Question #1:
A financial institution has the following market value balance sheet:
Assets                                          Liabilities and Equity
Cash $1,000                                Term Deposit $10,000
Bond $10,000                              Equity             $1,000
Total Assets $11,000                 Total Liabilities and Equity $11,000

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 term deposit has a 1-year maturity and a 6 percent fixed rate of interest. The FI expects no additional asset growth.
a. What will be the net interest income (NII) at the end of the first year?
Note: Net interest income equals interest income minus interest expense.

Interest income                                                $1,000            $10,000 x 0.10

               Interest expense                                     600            $10,000x 0.06

               Net interestincome (NII)                    $400

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?

Interest income                                                $1,000            $10,000 x 0.10

               Interest expense                                     700            $10,000x 0.07

               Net interestincome (NII)                    $300

c. Assuming that market interest rates increase 1 percent, the bond will have
a value of $9,446 at the end of year 1. What will be the market value of the equity for the FI? Assume that all of the NII in part (a) is used to cover operating expenses or is distributed as dividends.

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

               Bond                                     $9,446               Equity                                    $  446

               Total assets                         $10,446               Totalliabilities and equity  $10,446



d. If market interest rates had decreased 100 basis points by the end of year
one, would the market value of equity be higher or lower than $1,000? Why?
because the value of the bond would be higher ($10,600) and the value of the CD wouldremain unchanged.The market value of the equity would be higher ($1,600)
e. What factors have caused the change in operating performance and market
value for this firm?




Question #2:
Consider the assets (in millions) of two banks, A and B. Each bank is funded by $120 million in deposits and $20 million in equity. Which bank has the stronger liquidity position? Which bank probably has a higher profit?
Bank A Asset                                                          Bank B Assets
Cash $10                                                                  Cash $20
Govt. securities $40                                                  Consumer loans $30
Commercial loans $90                                              Commercial loans $90
Total Assets $140                                                     Total Assets $140

Question #3:
a) An insurance company’s projected loss ratio is 77.5 percent, and its loss
adjustment expense ratio is 12.9 percent. The company estimates that
commission payments will be 16 percent. What must be the minimum yield on
investments to achieve a positive operating ratio?

b) NOTE: This part of the problem is independent from part a) so do not consider
the information provided in part a) when answer part b).

What is the combined ratio for a property insurer who has a simple loss ratio of 73percent, a loss adjustment expense of 12.5 percent, and a ratio of commissions and other acquisition expenses of 18 percent? Also calculate what is the combined ratio adjusted for investment yield if the company earns an investment yield of 8 percent?

有时间在给你其他答案.

本人专业帮助完成任何会计,金融课程的作业,有需要站内短信