Questions from Financial Markets

Q: What are the principal advantages often cited as motivation for a private

What are the principal advantages often cited as motivation for a private equity buyout?

Q: The value of a $100,000 fixed-rate 30

The value of a $100,000 fixed-rate 30-year mortgage falls to $89,537 when interest rates move from 5% to 6%. What is the approximate duration of the mortgage?

Q: Calculate the duration of a commercial loan. The face value of

Calculate the duration of a commercial loan. The face value of the loan is $2,000,000. It requires simple interest yearly, with an APR of 8%. The loan is due in four years. The current market rate for...

Q: Calculate the income gap given the following items: • $

Calculate the income gap given the following items: • $8 million in reserves • $25 million in variable-rate mortgages • $4 million in checkable deposits • $2 million in savings deposits • $6 million o...

Q: Consider a $1,000-par junk bond paying a

Consider a $1,000-par junk bond paying a 12% annual coupon. The issuing company has 20% chance of defaulting this year; in which case, the bond would not pay anything. If the company survives the firs...

Q: The following financial statement is for the current year. From the

The following financial statement is for the current year. From the past, you know that 10% of fixedrate mortgages prepay each year. You also estimate that 10% of checkable deposits and 20% of savings...

Q: Springer County Bank has assets totaling $180 million with a duration

Springer County Bank has assets totaling $180 million with a duration of five years, and liabilities totaling $160 million with a duration of two years. If interest rates drop from 9% by 75 basis poin...

Q: The manager for Tyler Bank and Trust has the following assets and

The manager for Tyler Bank and Trust has the following assets and liabilities to manage: If the manager wants a duration gap of 3.00, what level of saving accounts should the bank raise? Assume that...

Q: If the First National Bank decides to convert $5 million of

If the First National Bank decides to convert $5 million of its fixed-rate mortgages into variable-rate mortgages, what happens to its interest-rate risk? Explain with income gap and duration gap anal...

Q: If the manager of the First National Bank revises the estimate of

If the manager of the First National Bank revises the estimate of the percentage of checkable deposits that are rate-sensitive from 10% to 25%, what will be the revised estimate of the interest-rate r...