Financial Institutions Management ________________________ FIN 4100 Name Fall 2019 1. A company has assets worth $366.11 million. It has debt with a total face value of $205.4 million. If the...

some of these are esoteric banking topics so did you best


Financial Institutions Management________________________ FIN 4100Name Fall 2019 1. A company has assets worth $366.11 million. It has debt with a total face value of $205.4 million. If the risk-free interest rate is 2.25% and the standard deviation of monthly returns on the company’s stock is 0.188, what is the likelihood the company will be unable to repay the debt in three years when it is due? 2a. Explain how the information revealed by a bank’s duration gap differs from that provided by its re-pricing gap. b. A bank has assets with a total value of $13.850 billion; $13.785 billion of which are rate sensitive. The bank’s liabilities total $12.905 billion; all are rate sensitive. If the average duration of its asset portfolio is 4.225 years and its liabilities have a 2.510-year average duration, what is the bank’s duration gap? c. What is the expected dollar change in the value of the bank’s equity if the average interest rate increases from 3.55% to 3.75%? d. What is the expected percentage change in the bank’s equity? 3a. Explain why the manager of a commercial bank is concerned about gap management. b. Using the data below, determine the repricing gap for each maturity range. maturity range time deposits expected MMDA runoff expected savings runoff securities loans and leases 3 months or less 3500000 450000 550000 35000 4000000 over 3 months to 1 year 2050000 2250000 3250000 210000 7500000 over 1 year to 3 years 450000 0 0 180000 2000000 over 3 years 100000 0 0 550000 3800000 c. If interest rates are expected to increase by 85 basis points over the next year, what effect will it have on the bank in the following year? 4. A financial institution is considering a customer’s request for a 12-year $15 million loan, with annual interest payments and the principal due at maturity. The financial institution requires a 22.5% risk adjusted return on capital for this loan. Its cost of funds is 3.875% for this loan and it will charge a 2% risk premium. Historically, the worst 1% of comparable loans experience a 125 basis point increase in the credit risk premium. The financial institution’s typical origination fee for this type of loan is 0.25% and similar loans yield 6.125%. The loan has a duration of 10.3. a. If the financial institution charges its standard origination fee and the uses the yield on similar loans as the coupon rate, what risk adjusted return on capital will the loan generate? b. Identify three ways, the financial institution could adjust the terms of the loan in order to realize a higher risk adjusted return on capital. For each of those ways, describe how that change will affect the numerator and the denominator of formula used to compute the risk adjusted return on capital.