Kibata

Sign In

Our Services

Get 15% Discount on your First Order

Order Now
[rank_math_breadcrumb]

Financial Institutions problem set

1

ACFI 450 Application Problem Set 5 Spring 2024

Due by 11:59 PM on Monday, April 29, 2024

Record your responses to the questions in a Word or PDF file named YourLastName_APS5. If you choose

to perform your calculations in Excel, you may also submit your calculations in an Excel file also named

YourLastName_APS5. Your Excel file SHOULD NOT CONTAIN WRITTEN RESPONSES; it should ONLY

CONTAIN CALCULATIONS. Your responses should be free of grammar, spelling, and punctuation errors.

Upload and submit your file using the Application Problem Set 5 drop box by the deadline.

1. A financial institution has the following assets:

• A portfolio of 18-year zero-coupon bonds with a face value of $22 million and currently yielding

7.3%

• A €9 million trading position in spot euros, with the current exchange rate of $1.05/€

• A $14 million trading position in equities

a. Calculate the daily earnings at risk (DEAR) for the bonds, assuming a 62 basis point potential

adverse move in yields. (8 points)

b. Calculate the dollar DEAR for the position in euros, assuming a volatility of the daily percentage

changes in the €/$ of 43 basis points and 99% confidence that an adverse move will not exceed

this amount. (6 points)

c. Calculate the DEAR for the equity position, assuming the standard deviation of daily returns on

the equities is 342 basis points and 99% confidence that an adverse move will not exceed this

amount. (4 points)

d. Calculate the 9-day value at risk (VAR) for (i) the bonds, (ii) the euro position and (iii) the equity

position. (6 points)

e. Calculate the DEAR for a portfolio of these three assets. The correlation coefficients are 0.24 for

the bonds and the euros, -0.29 for the bonds and the equities, and 0.43 for the equities and the

euros. (8 points)

2. A commercial bank has the following balance sheet (market value, millions). It also has $89 M in

contingent assets and $125 M in contingent liabilities. Should these contingencies take place and

these items move onto the balance sheet, what is the effect on the bank’s equity? Reflect these

changes on its balance sheet. (6 points)

Assets Liabilities and Equity

Cash $ 24 Deposits $204

Loans 285 Borrowed funds 182

Securities 135 Equity 58

Total Assets $444 Total Liabilities and Equity $444

3. A securities firm is considering automating some of its portfolio maintenance activities. The cost to

install the system is $34.65 M. Until the system needs to be replaced in 5 years, the securities firm

expects $10.34 M in after-tax savings each year due to the automation. If the company’s cost of

capital is 12%, should it automate the processes? Support your recommendation. (6 points)

2

4. A commercial bank has provided the balance sheet below. It has no off-balance sheet activities.

Corporate bonds have a 100% loan-to-value risk weight and residential mortgages have a 50% loan-

to-value risk weight.

Assets ($ millions) Liabilities and Equity ($ millions)

Cash $ 170 Deposits $ 1,328

U.S. Treasury securities 325 Subordinated debentures 146

Corporate bonds 753 Common stock 41

Residential mortgages 284 Retained earnings 17

Total Assets $ 1,532 Total Liabilities and Equity $ 1,532

a. Calculate each of the following ratios. For each ratio, also explain which capital category zone

the bank falls into. (4 points each)

i. CET1 risk-based capital ratio

ii. Tier I risk-based capital ratio

iii. Total risk-based capital ratio

iv. Tier I leverage ratio

b. Given your calculations and the capital categories in a., what prompt corrective actions will be

required of the bank by its regulators? Explain. (4 points)

5. A securities firm has provided the balance sheet below.

Assets ($ millions) Liabilities and Equity ($ millions)

Cash $ 46 Short-term funding $ 65

Debt securities 680 Bonds 593

Equity securities 1,045 Debentures 1,145

Other assets 56 Equity 24

Total Assets $ 1,827 Total Liabilities and Equity $ 1,827

The debt securities have an annual 6.42% coupon rate, 15 years to maturity and a yield to maturity

of 7.43%. The market value of the equity securities and the other assets is equal to their book value.

The firm has 1,750,000 shares outstanding and the price per share is $12.68.

a. Calculate the firm’s aggregate indebtedness to net capital ratio. (5 points)

b. Calculate the firm’s highly liquid assets to total liabilities ratio. (5 points)

c. Based on the firm’s ratios from a and b, is it in compliance with Rule 15C 3-1? Why or why not?

(3 points)

3

6. The risk-based capital charges for a life insurance company are provided below. The insurer has total

capital and surplus of $65.32 M.

Risk RBC Charge (millions)

Asset risk–affiliate (C0) $ 5.22

Asset risk–other investments (C1o) 3.87

Asset risk–common stock (C1cs) 12.56

Insurance risk (C2) 16.43

Interest rate risk (C3a) 10.76

Health credit risk (C3b) 4.32

Market risk (C3c) 7.93

Business risk (C4a) 8.15

Health business risk (C4b) 1.42

a. Calculate the (i) risk-based capital (RBC) charge and (ii) RBC level for the insurance company. (7

points)

b. What supervisory action level applies to this insurer? Support your response with the calculation

results from a. (3 points)

c. How much capital, if any, must the insurer raise to comply with the regulatory requirement? (3

points)

7. The risk-based capital charges for a property-casualty insurance company are provided below. The

insurer has total capital and surplus of $265.43 M.

Risk RBC Charge (millions)

Asset risk–OBS and affiliated P&C (R0) $ 6.43

Asset risk–fixed income (R1) 6.72

Asset risk–equity (R2) 12.87

Credit risk (R3) 9.35

Underwriting risk–premium (R4) 95.43

Underwriting risk–reserve (R5) 50.46

Catastrophe risk (Rcat) 78.92

a. Calculate the (i) risk-based capital (RBC) charge and (ii) RBC level for the insurance company. (7

points)

b. What supervisory action level applies to this insurer? Support your response with the calculation

results from a. (3 points)

c. How much capital, if any, must the insurer raise to comply with the regulatory requirement? (3

points)

Share This Post

Email
WhatsApp
Facebook
Twitter
LinkedIn
Pinterest
Reddit

Order a Similar Paper and get 15% Discount on your First Order

Order Now

Related Questions

Deliverable 2 – Develop an Advocacy Report

  Scenario You are the director of community affairs for the health lobby organization, Pathways to a Healthy America. In 2010, President Barack Obama signed the Affordable Care Act into law. As a result, millions of Americans who were previously uninsured gained access to the healthcare system. One of the

D7

Research and find any free organizational culture quiz. Some free quiz sites are provided below, but feel free to search and use your own quiz. · Culture QuizLinks to an external site. · What’s Your Organizational Culture? Links to an external site. Take the quiz and then copy/paste your results into

W2

Team Effectiveness in the Workplace Instructions Teams and their use in organizations seem to have varying degrees of success. We all know what a successful athletic team looks like. Managers often times try to translate that structure and in turn success back to the organization by organizing their employees in

4.2222

  Watch the “Lack of Commitment” video. on Youtube Post your response in a conversational tone and narrative form. When there is not a natural consensus- can you disagree as individuals and commit as a team? What Scriptures or other faith-based references support this concept? 

Virtual Teams

 What are some challenges managers face when communicating with virtual teams? 

ADD TO RESUME

KRYSTEL BERGHER PROFILE Accomplished Customer Service Expert committed to the delivery of quality service. Professional and Ethical. Seeking to assist or help a new customer service department in creating and achieving the much-needed customer service goals. CONTACT ADDRESS: 15851 Southwest 139th Place, Miami FL 33177. PHONE: 305-992-6010 EMAIL: [email protected] om

Economic & Marketing

Homework  Sustainability, Social Impact, and the Bottom Line Think about a product or service you recently purchased that originated from a company whose Mission includes a focus on sustainability or social impact. In other words, a company that “does well by doing good.“ Then read and reply to each of the prompts

BUS 3301 Unit VII Q12

Business Law BUS 3301 VII Question 12 The principal agent relationship, the employer-employee relationship, and the employer-independent contractor relationship are three types of agency relationships commonly found in business settings. Why is it important for business professionals to know what type of agency relationship they are forming?   Your response must

ITC_3303 E

Information Systems Management ITC 3301 Unit VII Essay In this final assignment, you will develop a paper that reviews some of the main topics covered in the course. Compose an essay to address the following: · Identify the components of an information system using the five-component framework and provide a

BUS 3301 Unit VII Q11

Business Law BUS 3301 VII Question 11 Have you ever bought something, paid for it, and arranged to have it delivered to you at a later date? That is a fairly typical transaction, and, under the Uniform Commercial Code (UCC), a delivery contract is created. However, it is a little

case

  1. How did Apple’s introduction of the IPhone in 2007 lead to its success over its main competitors? Think about which industries it has disrupted and how. 2. What are some the challenges facing Apple today? What should Apple do to address them? Be Specific.

Enviromental Analysis

Creating a mission vision instruction and an organizational chart Creating an Organization Chart BUS 100 Introduction to Business Organization Chart Instructions Organization Chart Create a hierarchy (think inverted tree) with the top decision maker at the top. Identify the different levels of management down to non-management roles. Determine if you

Strategic Financial Management

Project Overview: In the previous project part, you developed a flexible (flex) budget based on an unforeseen expense provided to you by your professor. For this project part, you will take things one step further by determining ways to reduce spending in different areas or aspects of your business.  Using

Strategic Financial Management

Project Overview: In the previous project part, you developed a flexible (flex) budget based on an unforeseen expense provided to you by your professor. For this project part, you will take things one step further by determining ways to reduce spending in different areas or aspects of your business.  Using

Please see attached – need in 24 hrs

Select 1 well-known business you would like to research and use as the basis for developing a marketing campaign. Refer to the following resources, as needed, for assistance selecting a business and locating information about it: · Marketing professional organizations, such as  4 A’s  website or  American Marketing Association  website  

CJ 2500 MOD 6 FINAL

INSTRUTIONS ATTACHED TOPIC TO DISCUSS How gps tracking units placed on cars can be obtained by law enforcement consistent with the 4th amendment and how such devices can help criminal investigations? Remember there must be critical analysis from you I the paper and not just a book report. Overview: A

week 3 pending

pfa TASK 1: By Tuesday Evening Reflection and Discussion Forum Week 3 Assigned Readings: Chapter 8. Understanding Markets and Industry Changes. Chapter 9. Market Structure and Long-Run Equilibrium. Chapter 10. Strategy: The Quest to Keep Profit from Eroding. Initial Postings: Read and reflect on the assigned readings for the week.