• Home
  • Solution Library
  • calculation of change in assets liabilities and equity of bank on change in interest rates

Solution Library

Calculation Of Change In Assets, Liabilities And Equity of Bank On Change In Interest Rates

Question

All assets and liabilities are currently priced at par and pay interest annually.

Assets

Amount

($ millions)

Annual

Rate

Liabilities

Amount

($ millions)

Annual

Rate

2-year loans

$40

8 %

5-year term deposit

$30

6 %

3-year loans

$60

8 %

3-year CD

$60

7 %

 

 

 

Equity

$10

 

Total

$100

 

Total

$100

 

 
1. What is the change in the value of its assets if all interest rates decrease by 1 percent?
    a.    Approximately $1.61 million.
    b.    Approximately $2.29 million.
    c.    Approximately $1.93 million.
    d.    Approximately $2.20 million.
    e.    Approximately $2.52 million.

2. What is the change in the value of its liabilities if all interest rates decrease by 1 percent?
    a.    Approximately $2.0 million.
    b.    Approximately $2.3 million.
    c.    Approximately $2.6 million.
    d.    Approximately $2.9 million.
    e.    Approximately $3.2 million.

3. What is the effect on the value of the FI’s equity if interest rates decrease by 1 percent?
    a.    Gain of $0.6968 million.
    b.    Gain of $0.30 million.
    c.    Loss of $1.6212 million.
    d.    No change in equity.
    e.    Loss of $0.6048 million.

4. What should be the rate on the two-year loan in order for the value of the equity to remain at $10 million? Assume the interest rates for all other instruments decreased by 1 percent.
    a.    5.50 percent.
    b.    6.19 percent.
    c.    4.15 percent.
    d.    6.54 percent.
    e.    7.25 percent.

Summary

This question belongs to Finance and it is about calculation of change in the value of assets and liabilities if interest rates decrease and effect of value of bank’s equity if interest rates decrease. These have been answered in the solution with calculations.

Total Word Count 237

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.