Questions from Financial Markets

Q: Given the estimates of duration in Table 23.1, what

Given the estimates of duration in Table 23.1, what will happen to the bank’s net worth if interest rates rise by 10 percentage points? Will the bank stay in business? Why or why not...

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

If the manager of the First National Bank revises the estimates of the duration of the bank’s assets to four years and liabilities to two years, what is the effect on net worth if interest rates rise...

Q: If the manager of the Friendly Finance Company decides to sell off

If the manager of the Friendly Finance Company decides to sell off $10 million of the company’s consumer loans, half maturing within one year and half maturing in greater than two years, and uses the...

Q: If the Friendly Finance Company raises an additional $20 million with

If the Friendly Finance Company raises an additional $20 million with commercial paper and uses the funds to make $20 million of consumer loans that mature in less than one year, what happens to its i...

Q: Given the estimates of duration in Table 23.2, what

Given the estimates of duration in Table 23.2, what will happen to the Friendly Finance Company’s net worth if interest rates rise by 3 percentage points? Will the company stay in bu...

Q: Last month, corporations supplied $250 billion in bonds to investors

Last month, corporations supplied $250 billion in bonds to investors at an average market rate of 11.8%. This month, an additional $25 billion in bonds became available, and market rates increased to...

Q: A bank issues a $100,000 variable-rate 30

A bank issues a $100,000 variable-rate 30-year mortgage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% after the first six months, what is the impact on the interest income for...

Q: A bank issues a $100,000 fixed-rate 30

A bank issues a $100,000 fixed-rate 30-year mortgage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% immediately after the mortgage is issued, what is the impact on the value of...

Q: Calculate the duration of a $100,000 fixed-rate

Calculate the duration of a $100,000 fixed-rate 30-year mortgage with a nominal annual rate of 7.0%. What is the expected percentage change in value if the required rate drops to 6.5% immediately afte...

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 fixed-rate mortgages that are repaid within a year from 20% to 10%, what will be the revised estimate of the interes...