FIN 4100 Management of Financial Institutions Spring 2019 Assignment 5 – capital adequacy You may work individually or with one other person on this assignment. Please show enough of your work that I...

please do on excel


FIN 4100 Management of Financial Institutions Spring 2019 Assignment 5 – capital adequacy You may work individually or with one other person on this assignment. Please show enough of your work that I can determine how you obtain your answers, (e.g, by turning in the spreadsheet you use to do the calculations). 1. A depository institution that has the following assets with weights as indicated: $875 million in commercial loans with one to three years maturity (100%); $105 million in long term treasuries (0%); $635 million loans secured by 1-4 family first mortgages (35%); $12 million cash items in collection (20%); $200 million in cash and reserves (0%); $500 million in mortgage backed securities guaranteed by US government agencies (20%); $285 million in multifamily mortgages (50%); $250 million in consumer loans (100%); $65 million in state and local governments bonds (20%); and $25 million in loans that are 90 days or more past due (150%). a. How much Common Equity Tier 1 capital must the depository institution have to be considered adequately capitalized? b. How much Tier 1 capital must the depository institution have to be considered adequately capitalized? c. How much total Tier 1 and Tier 2 capital must the depository institution have to be considered adequately capitalized? d. Assume the depository has Tier 1 capital as determined in part a, what is the maximum amount of total liabilities the depository institution can have and be considered adequately capitalized according to the Tier 1 leverage ratio. 2a. If a securities firm has net worth of $145 million, what is the maximum market value of its assets? b. If the firm from part a has assets as indicated in part a, what requirement must the firm meet with regard to the liquidity of those assets? 3. If a property/casualty insurance company has risk-based assets as indicated in the table below, how much equity must it have? Risk category Description Risk adjusted charge (millions) R0 Property-casualty affiliates 2.5 R1 Assets -fixed income 35 R2 Assets - equity 25 R3 Credit risk on receivables 5 R4 Underwriting risk – loss and LAE reserves with growth surcharge 50 R5 Underwriting risk – written premiums with growth surcharge 35 R6 Catastrophe – hurricane 5 R7 Catastrophe - earthquake 7.5 4. If a life insurance company has risk-based assets as indicated in the table below, how much equity must it have? Risk category Description Risk adjusted charge (millions) C0 Asset risk – affiliates 4.25 C1 C1cs Asset risk – Common stock 7.50 C!o Asset risk – Other investments 3.50 C2 Insurance risk 9.00 C3 C3a Credit risk 4.75 C3b Interest rate risk 6.35 C3c Market risk 3.60 C4 C4a Business risk 4.00 C4b Administrative risk 1.25