Question: 1) Liquidity risk at a financial intermediary (FI) is the risk
- that promised cash flows from loans and securities held by FIs may not be paid in full.
- incurred by an FI when the maturities of its assets and liabilities do not match.
- that a sudden surge in liability withdrawals may require an FI to liquidate assets quickly at fire sale prices.
- incurred by an FI when its investments in technology do not result in cost savings or revenue growth.
- risk that an FI may not have enough capital to offset a sudden decline in the value of its assets.
Question2) An 12 year annual payment corporate bond has a market price of $925. It pays annual interest of $60 and its required rate of return is 7%. By how much is the bond mispriced?
Question3) Plains National Bank has interest income of $250 million and interest expense of $110 million, noninterest income of $40 million and noninterest expense of $65 million on earning assets of $3,900 million. What is Plains' overhead efficiency ratio?