Question

Answer the following questions:

Pages 452
1.) Consider a failing bank. A deposit of $ 150,000 is worth how much if the FDIC uses the payoff method?
The purchase and assumption method?
Which is more costly to taxpayers?


3.)Consider a bank with the following balance sheet:

Assets                                                 Liabilities
Required reserves……8 million          Checkable deposits 100 million
Excess reserves…3 million                  Bank capital 6 million
T-bills $ 45 million
Mortgages $40 Million
Commercial loans $10 million

The bank commits to a loan agreement for $10 million to a commercial customer.Calcualte the banks capital ratio before and after the agreement.Calcualte the banks risk weighted assets before and after the agreement.


5..) calculate the risk weighted assets and risk weighted capital ratio after Old hat’s first day.

(Problem for numbers 5,6,7 ,9 and 11 use this )

Oldhat financial started its first day of operations with 9 million in capital.130 million in checkable deposits are received.The bank issues a 25 million commercial loan and another 50 million in mortgages with the following terms:
Mortgages 200 standard 30 years fixed with a nominal annual rate of 5.25% each for $ 250,000
Commercial loan three year loan,simple interest paid monthly at 0.75% per month.


6.) The next day, terrible news hits the mortgages markets, and mortgage rates jump to 13%.What is the market value of Old hats mortgages? What is Old hats market value ‘capital ratio?


7.) Bank regulators force Old hat to sell its mortgages to recognize the fair market value. What is the accounting transaction? How does this affect its capital position?


9.) Old hat decides to invest the $77 million in excess reserves in commercial loans. What will be the impact on its capital ratio?Oldhats balance sheet look like?
What is the capital ratio?


11.)Old hat borrows $5.5 million in the overnight federal funds market to meet its resources requirement.
What is the new balance sheet for Oldhat?How well capitalized is the bank?


Page 488 web excersizes

2.)Despite the regulations that protect banks from failure some do fail, go to www2.fdic.gov/hsob/.select the tab labeled bank and thrift failures. How many bank failures occurred in the United states during the most recent complete calendar year?
What were the total assets held by the banks that failed? How many banks failed in 1937?


Page 511 1,3,5,7 and 9

1.) On January 1,the shares and prices for a mutual fund at 4:00 pm are as follows:

Stock          Shares owned          Price
1                   1,000                   $1.92
2                   5,000                   $51.18
3                   2,800                   $29.08
4                   9,200                   $67.19
5                   3000                     $4.51
cash               n.a                        $5,353.40

Stock 3 announces record earnings,and the price of stock 3 jumps to $ 32.44 in after market trading.If the fund illegally allows investers to buy at the current NAV,how many shares will $25,000 buy?
If the Fund waits until the price adjusts,how many shares can be purchased?What is the gain to such illegal trades?Assume 5,000 shares are outstanding.


3.)A mutual fund offers’’A’’shares which have 5% upfront load and an expensive ratio of 0.76%.The fund also offers ‘’B”” shares,which have a 3% back-end-load and an expensive ratio of 0.87%.Which shares make more sense for an investor looking over an 18-year horizon?


5.)A $ 1 million fund is charging a back end load of 1%,12b-1 fees,1% and an expense ratio of 1.9%.Prior to deducting expensive,what must the fund value be at the end of the year for investor to break even?


7.) AN in vestor sends the fund a check for $ 50,000 .If there is no front end load,calculate the new number of shares and price per share.Assume the manager purchases 1,800 shares of stock 3,and the rest is held as cash. Use table below:


stock          Shares owned          price
1                   1,000                   $1.97
2                   5,000                   $48.26
3                   1,000                   $26.44
4                   10,000                  $67.49
5                   3,000                   $2.59


9.)Assume the new investor then sells the 420 shares.What is his profit?What is the annualized return?The fund sells 800 shares of stock 4 to raise the needed funds.Assume 250 trading days per year.


Page 541-542 -----2,4,6 and 8

2.) Assume that life expectancy in the United States is normally distributed with a mean of 73 years and a standard deviation of 9 years.What is the probility that you will live to be over 100 years old?


4.)A home products manufacturer estimates that the probility of being sued for products defects is 1% per year per product manufacturer.If the firm currently manufactures 20 products,what is the probility that the firm will experience no lawsuits in a given year?


6.) A client needs assistance with retirement planning,here are the facts:
• the client,Dave is 21 years old.He wants to retire at 65.
• Dave has disposable income of $ 2,000,00 per month.
• The IRA Dave has chosen has an average annual return of 8%.
If Dave contributes half of his disposable income to the account, what will it be worth at 65?
How much would he need to contribute to have $ 5,000,000 at 65?


8.)An employee contributes $ 200 a year at the end of the year)to her pension plan. What would be the total contributions and value of the account after five years? Assume that the plan earns 15% per year over the period.

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