Question

Answer the following questions:

3. At year-end 2014, the balance sheet of MiniBank consisted of the following (in $000’s):
            Liabilities                                                             Assets
90-day CDs maturing in January    36          Floating rate monthly mortgages, maturing 11/15/2015            30
90-day CDs maturing in February    32          Fixed rate monthly mortgages, maturing 7/1/2017                   32
90-day CDs maturing in March       25          Fixed rate bond, semi-annual coupon, maturing 1/1/2018       36
1-yr CDs maturing in April               16            Fixed rate bond, semi-annual coupon, maturing 7/1/2015       37
1-yr CDs maturing in May                15            Floating rate bond, semi-annual coupon, maturing 4/1/2016   43
1-yr CDs maturing in June               10
1-yr CDs maturing in July                  8
1-yr CDs maturing in August            12
1-yr CDs maturing in October          10
1-yr CDs maturing in December       5
             Total Liabilities                   169                                       Total Assets                                                 178

a.    What are the Earnings at Risk for the year 2015 for MiniBank?
b. What is the cumulative gap at 6 months?


6. Company A is planning to borrow $10 million for 10 years, and has received quotes for issuing a fixed rate bond with semi-annual coupons at 3.2% per annum or a floating rate bond with semi-annual coupons at LIBOR plus 20 basis points. Company B is also planning to borrow $10 million for 10 years, and has received quotes for issuing a fixed rate bond with semi-annual coupons at 4.1% per annum or a floating rate bond with semi-annual coupons at LIBOR plus 40 basis points.   Company A would prefer to borrow at a floating rate, while company B would prefer to borrow at a fixed rate. Swapmakers Intermediaries LLC will arrange interest rate swaps for 10 basis points per annum on the notional principal. As an officer of Swapmakers Intermediaries, propose an interest rate swap that will benefit both Company A and Company B equally. Specify the cash flows that will take place periodically during the deal, as well as the cash flows at the beginning and end of the deal. What is the net rate of borrowing for each company?


7. You buy a put option maturing in September on 100 shares of GM stock with a strike price of $37 per share for $2.47 per share and a call option maturing in September on 100 shares of GM stock with a strike price of $40 per share for $1.74 per share.
a. What is this strategy called?
b. For what stock price range on the maturity date will you make a profit on this combination?
c. What is the maximum loss you are exposed to?
d. For what stock price range on the maturity date will you sustain your maximum loss?


12. A stock is currently trading at $103.25/share. You write two European put options for 100 shares each maturing in five months at a strike price of $97.50/share for $2.50/share.
h. For what stock price range on the maturity date will you make a profit?
i. What is the maximum profit you can make?
j. For what stock price range on the maturity date will you make your maximum profit?
k. What is the maximum loss you are exposed to?
l. For what stock price range on the maturity date will you sustain your maximum loss?

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3)
a.    What are the Earnings at Risk for the year 2015 for MiniBank?
Earnings at risk here is the difference between the total interest earned and the total interest paid by the company. Since the yields are not given here, it has been expressed as equation: Total interest earned on assets – Total interest on liabilities...

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