Raghubhai Calculate the repricing gap and impact on net interest income of a 1 percent increase in interest rates for the followingpositions:a. Rate-sensitive assets = $100 million; Rate-sensitive liabilities = $50 million.b. Rate-sensitive assets = $50 million; Rate-sensitive liabilities = $150 million.c. Rate-sensitive assets = $75 million; Rate-sensitive liabilities = $70 million.(For all requirements, negative amounts should be indicated by a minus sign. Enter your answers in millions roundedto 2 decimal places. (e.g., 32.16))Repricinggap> Answer is not complete.Netinterestincomea. $b. $61.00 million(111.00) million$ (111.00)millionmillionC. $6.00 millionmillion

REPRICING GAP = RATE SENSITIVE ASSETS (RSA)- RATE SENSITIVE LIABILITIES (RSL)REPRICING…

Answered: Calculate the repricing gap and impact…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Accounting for Fair Value Hedge: Interest Rate Swap On January 1 of Year 1, Innovative Lab issued a 4-year $50,000 note to a local bank with fixed interest payments based on 6%, payable annually on December 31. To hedge the risk of a fixed interest payment, Innovative Lab entered into a 4-year interest rate swap agreement on January 1 of Year 1, calling for interest payments tied to a designated benchmark interest rate to a counterparty and receipt of interest based on 6%, negotiated at a notional amount of $50,000. The settlement date for the net cash payment is on December 31 of each year. The following table provides additional information related to the interest rate swap as forecasted over the next 4 years. Fair value: Interest rate swap Fair value: note payable Benchmark interest rate Required Dec. 31, Year 1 Dec. 31, Year 2 Dec. 31, Year 3 Dec. 31, Year 4 $200 $0 $50,200 4.2% $400 $50,400 4.0% $0 $50,000 5.2% $50,000 5.8% a. Record the required journal entries for Year 1, Year…
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.
Compute the change in the annual Net Interest Margin, given the following information: Rate sensitive assets (0-1yr): Book value $50 million; Market value $60 !! million Rate sensitive liabilities (0-1yr): Book value = $90 million; Market value = $95 million !3! Average earning assets (book value) = 200 million; Average earning assets (mkt value) =$240 million Change in interest rates (expected) = increase of 50 basis points O- 0.1% + 0.1% O +1.0% O +0.073% O -0.73%
Question Consider the following balance sheet positions for a financial institution:• Rate-sensitive assets = $120 million; Rate-sensitive liabilities = $180 million.• Rate-sensitive assets = $230 million; Rate-sensitive liabilities = $200 million.a) Calculate the repricing gap and the impact on net interest income of a 2 percent increase in interest rates for each position. b) Calculate the repricing gap and the impact on net interest income of a 2 percent decrease in interest rates for each position.c) Explain the type of risk this FI is exposed to in each position.
Question Consider the following balance sheet positions for a financial institution:• Rate-sensitive assets = $120 million; Rate-sensitive liabilities = $180 million.• Rate-sensitive assets = $230 million; Rate-sensitive liabilities = $200 million.a) Calculate the repricing gap and the impact on net interest income of a 2 percent increase in interest rates for each position. b) Calculate the repricing gap and the impact on net interest income of a 2 percent decrease in interest rates for each position.c) Explain the type of risk this FI is exposed to in each position. Kindly explain in detail
Assume you have the following asset and liability in your Balance Sheet: Asset - Bond A Modified Duration = 2.6 years Value = RM1.5 million Liability - Bond B Modified Duration = 3.1 years Value = RM1.0 million a. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%? Assume previous interest is 10% c. What should or could you to achieve immunised balance sheet? Note: Please show all workings.
If rate-sensitive assets equal $600 million and rate-sensitive liabilities equals $800 million, what is the expected change in net interest income if rates increase by 1%?
Which of the following statements is CORRECT? Question 2 options: a) The proportion of the payment that goes toward interest on a fully amortized loan increases over time. b) An investment that has a nomiral rate of 6% with semiannual payments will have an effective rate that is smaller than 6%. c) If a loan or investment has annual payments, then the effective, periodic, and nominal rates of interest will all be different. d) The present value of a 3-year, $150 ordinary annuity will exceed the present value of a 3-year, $150 annuity due. e) if a loan has a nominal annual rate of 7%, then the effective rate will never be less than 7%.
H10. Assume that initially, the risk premium, ρ = 0 and that the domestic and foreign interest rates are given by R = .06, R* = .05. Suppose that the risk premium depends linearly on the difference between domestic government debt, B, and domestic assets of the central bank, A, i.e., ρ = ρ (B-A) Find the new domestic interest rate if a sterilized purchase of foreign assets adjusts A s.t. (a) B - A = -.01/ ρ0 (b) B - A = .03/ ρ0
Assume you have the following asset and liability in your balance sheet Asset - Bond AModified Duration = 1.5 yearsValue = RM1 million Liability - Bond BModified Duration 2.6 yearsValue = RM2 million a. Calculate the duration gaps?b. What is the expected change in Net worth if interest increases by 1%?c. What should or could you to achieve immunised balance sheet?
1. In a loan amortization schedule, interest payments for each period would most probably a. Increase overtime c. Remain the same b. Decrease overtime d. There are no interest payments in the schedule 2. The formula (1 + i)n is also called a. present value factor for lump-sum payment b. future value factor for lump-sum payment c. present value factor for ordinary annuity d. future value factor for ordinary annuity 3. An increase in the present value may be caused by a. increase in the discount rate b. decrease in the discount rate c. discount rate does not affect the present value d. none of the above 4. Interest payments that are based on the original principal and previous interest recognized is based on a. present value c. simple interest rate b. future value d. compound interest rate 5. The time value of money suggest that a peso received today is worth a peso received in the future. a. less than c. the same as b. more than d. none of the above
For compounding more frequently than annual, the effective interest rate Select one: a. is higher than the nominal rate b. is lower than the nominal rate c. depends on the amount borrowed 18 d. equal to the nominal rate

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