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:
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)
Correct Answer:
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