Question 1: Following is the information about UB bank: Assume Target Capital Ratio = 4%.
|
Common stock costs
|
10%
|
|
Deposit costs
|
5%
|
|
Assets
|
Revenues
|
|
Treasuries
|
5.20%
|
|
Municipal
|
5.12%
|
|
Mortgages
|
5.28%
|
|
Consumer Loans
|
5.45%
|
(a) How much are the WACCs?
(b) and the spreads?
(c) Which asset is the most profitable?
Question 2: Following is the information about Yale bank: Assume Target Capital Ratio = 4%
|
Common stock costs
|
15%
|
|
Deposit costs
|
6%
|
|
Assets
|
Revenues
|
|
Treasuries
|
6.25%
|
|
Municipal
|
6.32%
|
|
Mortgages
|
6.45%
|
|
Consumer Loans
|
6.60%
|
(a) How much are the WACCs?
(b) and the spreads?
(c) Which asset is the most profitable?
Question 3: Risk Weighted Capital Requirments
1. Balance sheet item
|
Cash
|
$5,000
|
Deposits
|
$84,500
|
|
Treasuries
|
$10,000
|
Common Stock
|
$2,500
|
|
Municipals (G.O.)
|
$5,000
|
Retained Earning
|
$3,000
|
|
1 - 4 Family Mortgages
|
$5,000
|
|
|
|
Corp. Loans
|
$65,000
|
|
|
|
|
$90,000
|
|
$90,000
|
2. Off-Balance sheet items
a. Commercial Letters of Credit for UB corporation $10,000
b. Forward Contract on Municipal on Revenue Bond $10,000
A. If you recall $10,000 corporate loans and keep that amount in the form of Cash, what will be the Tier 2 Capital Ratio (including all the capital)?
B. If you recall $10,000 corporate loans and distribute $1,000 as dividends to the stockholders to prepare next annual meeting by reducing retained earnings, what will be the Tier 2 Capital Ratio?
Question 5: If the central bank pumps the money into the economy, there are several ways to do it. First they can supply more money into the economy by 1. Printing new money or 2. Buy back government bonds etc. That also depends on the Reserve requirement rate.
(a) If the Fed supply $100 into the economy and the reserve requirement is 10%, then how much more new DEPOSITS will be created?
(b) If the Fed supply $100 into the economy and the reserve requirement is 5%, then how much more new LOANS will be created?
(c) The ABC developing country economy needs $20,000 more business loan for the recovery of the economy, currently total banks have $2,000 under reserve requirements and the current reserve requirement rate is 10%.
What should be the new reserve requirement rate for this economy to achieve the supplying $20,000 more new LOANS to the business without supplying any new money by the Central Bank?
Question 6: UB company's cash position, measured in millions of dollars, follows generalized Wiener process with a drift rate of 0.1 per year and a variance rate of 0.16 per year.
The initial cash position is $2.0 million.
At what time of month in the future is the probability of negative cash position greatest?
Question 7: UB company's cash position, measured in millions of dollars, follows a generalized Wiener process with a drift rate of 0.5 per quarter and a variance rate of 4.0 per quarter.
How high does the company's initial cash position to be for the company to have a less than 2.5% chance of a-negative cash position by the end of one-year?