1. You are asked to determine the market value(mark-to-market) balance sheet for Angus State Bankand loan duration (amounts in $ thousands and duration in years):

Book Value Market Value

Assets Amount Amount Duration

T-bills $ 180 $ 180 0.50

Loans* 5,000 ______ _____

Total Assets 5,180 ______

Liabilities

Deposits 4,184 4,184 0.50

Total Liabilities 4,184 4,184

Equity 996 ______

Total Lia and NW 5,180 ______

*Since this is a simple bank, it has only one type of loan. The loan has a $5,000 book value (current outstanding principal), amortized loan with annual payments, an interest rate of 6.5 percent, and 20-years to maturity. Similar amortized loans today (market interest rate for similar loans) have an interest rate of 7 percent which, is the market yield.

a.Using Excel, determine the market value and duration of the loan and fill in the blanks in the balance sheet above. Please include a copy of your Excel Spreadsheet with your completed exam (you can copy and paste as a picture).

b. What is the average duration of all the assets and what is the average duration of all the liabilities?

Average Duration of Assets: = ______ years

Average Duration of Liabilities:[4,184*0.5]/4184 = 0.50 years

c.What is the leverage-adjustedduration gap? Is Angus State Bank exposed to interest rate risk? Is it exposed if interest rate increase or decrease?

Leverage-adjusted duration gap (DG) = -[DA – kDL]= = ___________ years

The duration gap is _______ years, indicates that an increase in interest rates will lead to an increaseor decrease in net worth. Circle the correct change in net worth

d. What is the forecasted impact on the market value of equity caused by a relative 1.5 percent upward shift in the entire yield curve? [i.e.,Dr/(1+r) = 0.0150]?

The market value of the equity will change by the following:

MVE = -DG * (A) * r/(1 + r) = ______ (_________)(0.015)= $______________.

e.What variables are available to the financial institution to immunize or at least reduce interest rate risk exposure on the balance sheet? Taking one variable at a time, how much would each variable need to change to get DGAP equal to 0?

To immunize the institution for interest rate risk, the Leverage Adjusted DG needs to be zero:

DG = DA–kDL= 0

The choice is to make the duration of assets equal to:

DA= (4184/4987.37)0.50=0.42 years

or the duration of liabilities equal to:

DL= _______________ = ____________ years

Or some combination thereof. Obviously, for any depository institution, this cannon occur, thus the next most cost effect way to reduce interest rate risk is using interest rate swaps.

 

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10-10 How does the use of a time-driven activity-based cost (TDABC) system facilitate the preparation of budgets for an organization?

 

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10-7: Composite, or Weighted Average, Cost of Capital, WACC WACC Midwest Electric Company (MEC) uses only debt and common equity. it can borrow unlimited amounts at an interest rate of rd = 11% as long as it financ at its target capital structure, which calls for 35% debt and 65% common equity. Its last dividend (Do) was $2.20, its expected constant growth rate Is 3%, and Its common stock sells for $21. MEC’s tax rate is 40%. Two projects are available: Project A has a rate of return of 14%, while Project B’s return i 11%. These two projects are equally risky and about as risky as the firm’s existing assets.
a. What is its cost of common equity? Round your answer to two decimal places.
WACC? Round your answer to two decimal places,

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10.00 points The following table contains the small-signal parameters for a bipolar transistor. What are the values of BFad VA? Fill in the values of the missing entries in the table if VCE 8 V. (Round off the solution to one decimal place except for gm. For gm, round off the solution to two decimal places.) Bi Transistor Small-S Parameters lc 0.003 A 50000 O MA 0.25 S 430 O 10-4 490000 O Hints ReferenceseBook & Resources Hotel 10.00 points The following table contains the small-signal parameters for a MOSFET. What are the values of Kn ad? Fill in the values of the missing entries in the table if Vos 5.3 V and VTN 1.1 V. (Round off the solution to one decimal place.) MOFSET Small-Signal Parameters 9m (S) SMALL- SIGNAL LIMIT gs V 30 0.0001 x10 5 X10 12 x1o Hints References eBook & Resources Hint#1 Check my work

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1. Your strategy produces 100,000 forecasts over time. You would like to derive the CPCV distribution of Sharpe ratios by generating 1,000 paths. What are the possible combinations of parameters (N, k) that will allow you to achieve that?

2. You discover a strategy that achieves a Sharpe ratio of 1.5 in a WF backtest. You write a paper explaining the theory that would justify such result, and submit it to an academic journal. The editor replies that one referee has requested you repeat your backtest using a CPCV method with N = 100 and k = 2, including your code and full datasets. You follow these instructions, and the mean Sharpe ratio is –1 with a standard deviation of 0.5. Furious, you do not reply, but instead withdraw your submission, and resubmit in a different journal of higher impact factor. After 6 months, your paper is accepted. You appease your conscience thinking that, if the discovery is false, it is the journal’s fault for not having requested a CPCV test. You think, “It cannot be unethical, since it is permitted, and everybody does it.” What are the arguments, scientific or ethical, to justify your actions?

 

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