Steps / explanations on how to get the answers please Chapter 3 and 4-Sample Pro
ID: 2616286 • Letter: S
Question
Steps / explanations on how to get the answers please Chapter 3 and 4-Sample Problems Use the following information to answer questions 1-7. Amount (Smillions) Amount (Smillions) Interest Income Cash Inv. Securities Net Loans 40 150 Securities Business Loans Mortgages Installment Loans Credit Cards 1.890 10.503 2.682 8.368 5.796 Business Loans 270 90 160 60 Mortgages Installment Loans Credit Cards Loan Loss Reserve Other Assets Total Assets Interest Expense Demand Savings Accounts Time Deposits Purchased Funds 60 830 0.649 1.738 2.720 2.937 7.047 13.389 0.039 9.510 3.233 6.277 Demand Deposits Loan Loss Provision Non-Interest Income Non-Interest Expense Capital Gains/Losses Before Tax Income Taxes Net Income Non-Interest Bearing Interest Bearing Savings Accounts Time Deposits Purchased Funds Equity Total Liabilities and Equity 110 220 240 100 120 830 1. What is the yield on earning assets for the bank? 2. What is the cost rate on interest bearing liabilities? 3. What is the net interest margin? 4. What is the return on assets? 5. What is the return on equity? 6. What is the efficiency ratio? Answer 4.01% Answer 1.55% Answer 2.58% Answer 0.76% Answer 5.23% Answer 51.74% Answer 6.342 7. What is burden for this bank?
Explanation / Answer
Answer 1:
Earning Assets are Investment securities, Business loans, Mortgages, Installment loans and credit card.
Earning Assets = $150 +$270 + $90 + $160+ $60 = $730 millions
Yield (Interest Income) of earning assets = $1.890 + $10.503 + $2.682 + $8.368 + $5.796 = $29.239 millions
Hence,
Yield on earning assets = $29.239 / $730 = 4.01%
Answer 2:
Interest bearing liabilities are Interest bearing demand deposits, saving accounts, time deposits and purchased funds
Interest bearing liabilities = $110 +$220 + $240 + $100 = $670 millions
Interest Expense on interest bearing liabilities = $0.649 + $1.738 + $5.304 + $2.720 = $10.411 millions
Hence,
Cost rate on interest bearing liabilities = $10.411 / $670 = 1.55%
Answer 3:
Net Interest Margin = (Interest Income - Interest expense) / Earning assets = ($29.239 - $10.411) / $730 = 2.58%
Answer 4:
Return on assets = Net Income / Total assets = $6.277 / $830 = 0.76%
Answer 5:
Return on equity = Net Income / Total equity = $6.277 / $120 = 5.23%
Answer 6:
Efficiency ratio = Non-interest Expense / (Interest Income + Non-interest revenue - Interest expense) = $13.389 / ($29.239 + $7.047 - $10.411) = 51.74%
Answer 7:
Burden on the bank = Non-interest expense - Non-interest income = $13.389 - $7.047 = $6.342 million
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