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The Go Broncos Bank Has the Following Questions It Would

Question 8

Essay

The Go Broncos Bank has the following questions it would like to ask you about its bank. The bank's balance sheet is as follows:
 Assets:  Maturity  Securities 2% rate $150 million 1 year  Long-term Loans 6% rate $850 million 5 years  Total Assets $1000 million  Liabilities & Equity:  Short-term Deposits 1% rate $600 million 1 year  Certificates of Deposit 3% rate $300 million 2 year  Total Liabilities $900 million  Equity $100 million  Total Liab. & Equity $1000 million \begin{array} { l l r l } \text { Assets: } & & & \text { Maturity } \\\text { Securities } & 2 \% \text { rate } & \$ 150 \text { million } & 1 \text { year } \\\text { Long-term Loans } & 6 \% \text { rate } & \underline{\$ 850 \text { million } }& 5 \text { years } \\\text { Total Assets } & & \$ 1000 \text { million } & \\\text { Liabilities \& Equity: } & & & \\\text { Short-term Deposits } & 1 \% \text { rate } & \$ 600 \text { million } & 1 \text { year } \\\text { Certificates of Deposit } & 3 \% \text { rate } &\underline{ \$ 300 \text { million }} & 2 \text { year } \\\text { Total Liabilities } & & \$ 900 \text { million } & \\\text { Equity } && \underline{\$ 100 \text { million }} & \\\text { Total Liab. \& Equity } && \$ 1000 \text { million } &\end{array}
a. What is the bank's expected net interest income $(NII) and expected net interest margin (NIM)? [Hint: NII = Sum (Each asset x its rate) - Sum (Each liability x its rate) and NIM = NII / Earning Total Assets (excludes cash)]
b. If the bank has the NIM% that you calculated above, a PLL% of 0.50%, and a Burden% of 1.50%, what is the bank's operating ROA before taxes (NIM - Burden% - PLL%)? (OROA) _______1.90%________
c. What is the equity multiplier (EM) for the bank? (Hint: EM = total assets/equity)
d. Using this equity multiplier, what is the bank's Operating ROE?
(Hint: ROE = OROA x EM)
e. What is the bank's 1-year income (funding) gap (Rate Sensitive Assets (RSA) for 1 year - Rate Sensitive Liabilities (RSL) for 1 year?
f. Given this funding gap if rates go up by 1%, what is the expected change in the bank's NII $? (Hint: Change NII $ = Funding Gap x Change Rate)

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