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AVprozaik [17]
3 years ago
9

"question 1: a bank with a two-year investment horizon has issued a one-year certificate of deposit for $50 million at an intere

st rate of 2 percent. with the proceeds, the bank has purchased a two-year treasury note that pays 4 percent interest. what risk does the bank face in entering into these transactions? what would happen if all interest rates were to rise by 1 percent? question 2: why do you think that u.s. banks are prohibited from holding equity as part of their own portfolios?"
Business
2 answers:
Misha Larkins [42]3 years ago
7 0

Answer:

Explanation: Bank is faced with the risk of monetary value of Treasury note may fall. After one year, the bank must make sure that the funds are available at hand. funds made available by banks are being sold at the end of the first year.With the fall in value, there might be a capital loss which is a risk that may occur.

The bank will need to absorb a capital loss peradventure if the value of asset drops . Then capital loss could be greater than 2%, given that the value of asset fall further below.

Meaning, the case will again be the same, if the interest rate increased by 1%..

Lynna [10]3 years ago
6 0

Answer:

Answer: Annual Profit for Bank  = $1000000

               if all interest rates were to rise by 1 percent? there shall be no effect on Profits.

Explanation:

The bank faces the risk that the short-term interest rate will increase (Rise) before the second year, this will increase the amount of interest the bank has to pay on the CD but there will be no changes in the interest income that the bank receives from the Treasury.

2.

Annual income of bank = Annual interest on Treasury note =      $50000000 * 4% = $2000000

Annual expense of bank = Annual interest on CD=                        $50000000 * 2% = $1000000

Annual Profit for Bank = $2000000 - $1000000 = $1000000

3. If all interest rate rises by 1% then:

Annual income of bank = Annual interest on Treasury note =         $50000000 * 5% = $2500000

Annual expense of bank = Annual interest on CD=                         $50000000 * 3% = $1500000

Annual Profit for Bank = $2500000 - $1500000 = $1000000

Hence, there shall be no effect on Profits.

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At Ava's second birthday, her grandparents wanted to pool their money to buy U.S. Treasury bonds that would ultimately provide $
Lelu [443]

Answer:

They would need to buy $64,068.981 in U.S treasury bonds on Ava's second birthday to ultimately provide $120,000 for college expenses in 16 years.

Explanation:

The initial amount to be invested in order to yield $120,000 after 16 years can be expressed as;

F.V=P.V(1+R)^n

where;

F.V=future value of investment

P.V=present value of investment

R=annual interest rate

n=number of years

In our case;

F.V=$120,000

P.V=unknown

R=4%=4/100=0.04

n=16 years

replacing;

120,000=P.V(1+0.04)^(16)

120,000=P.V(1.04)^16

120,000=1.873 P.V

P.V=120,000/1.873

P.V=$64,068.981

They would need to buy $64,068.981 in U.S treasury bonds on Ava's second birthday to ultimately provide $120,000 for college expenses in 16 years.

4 0
3 years ago
Silver Co. has a $330 petty cash fund. At the end of the first month the accumulated receipts represent $56 for delivery expense
xxTIMURxx [149]

Answer and Explanation:

The journal entry is shown below:

Delivery expenses Dr $56

Merchandise inventory Dr $179

Miscellaneous expenses $25

                 To Cash $260

(Being the reimbursement of the account is recorded)

For recording this we debited all expenses and credited the cash as it increased the expenses and decreased the assets

3 0
3 years ago
The budget for making the movie The Twilight Saga: New Moon was one-fifth the budget for making Harry Potter: The Half Blood Pri
sergey [27]

Answer:

The budget for The Twilight Saga: New Moon = $50 million

Explanation:

Let the budget for Twilight Saga: New Moon = T

Let the budget for Harry Potter: The Half Blood Prince = H

We are given the following:

T=\frac{1}{5}H (The budget for Twilight Saga is one-fifth the budget for Harry Potter)

Cross multiplying the equation

5T = H  - - - - (1)

H + T = 300,000,000 - - - - - (2) (Together the budgets totaled $300 million)

Next, let us substitute the value of H in equation (2) with equation (1)

(5T) + T = 300,000,000

6T = 300,000,000

T = \frac{300,000,000}{6} \\T = 50,000,000

Therefore, the budget for The Twilight Saga: New moon = $50,000,000

And the budget for Harry Potter: The Half Blood Prince = $250,000,000

8 0
3 years ago
Which statement is true? Portfolio A dominates portfolio B if: Portfolio A has a higher return that portfolio B Portfolio A has
ra1l [238]

Answer:

The answer is "The last choice"

Explanation:

While comparing 2 assets or portfolio management, the risk of each portfolio and the rates of return of each portfolio should be taken into consideration. Whether the same danger is in the two assets. One should be preferred with both the higher return and one from the lowest risk should be recommended unless the two have the same rate of return. Portfolio A consequently either has a higher return and an at least as low fluctuation as B, or even lower volatility as well as an anticipated return at least as strong as B.

7 0
3 years ago
A company's current sales are $300,000 and fixed expenses total $225,000. The contribution margin ratio is 30%. The company has
jeka57 [31]

Answer:

$6,000

Explanation:

The net operating income will increase by $6,000;

$70,000*30%-$15,000=$6,000

As the CM ratio is 30% and $15,000 are fixed expenses,net result will be increase in net operating income.

7 0
3 years ago
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