Question

1- Please use the information for this question and the following.

A- A bank is considering two securities: a 30-year Treasury bond yielding 7% and a 30-year municipal bond yielding 5%. If the bank's tax rate is 30%, what is the tax-equivalent yield of the municipal bond? Please express as a %.

B- Which bond gives the investor a better tax-equivalent yield?

2- Please use the information in this question for the next four questions, including this one. Below is the balance sheet First National Bank. (all numbers are in $s)

A- Please calculate the dollar value of FNB's earning assets.

B- Please calculate the ROA for FNB. The income statement is below. Please express as a %.

C- Please calculate FNB's asset utilization ratio. Please express as a %.

D- Please calculate FNB's spread.

Assets			Liabilities and Equity
	Cash	450		Demand Deps	5,510
	Demand Deps at other banks	1,350		Small Time Deps	10,800
	Investments	4,050		Jumbo CDs	3,200
	Fed Funds Sold	2,025		Fed Funds Purchased	2,250
	Loans	15,525		Equity	2,200
	Reserve for Loan Losses	(1,125)
	Premises	1,685
	Total Assets	23,960		Total L+E	23,960

Interest Income	2,600
Interest Expense	1,650
Provision for Loan Losses	180
Non-interest Income	140
Non-interest expense	420
Taxes	90

3- Below is the balance sheet for Shorewood Savings Bank. What is it's net income? The bank also earns $120k in noninterest income, incurs $80k in noninterest expense and pays taxes of $2,500k. Answer in $s.

Assets	$	Rate Earned	Liabs + Equity	$	Rate Paid
Cash and due	6,000	0	Demand Deposits	9,000	0
Investments	22,000	8	NOW accts	69,000	5
Repo. Agrmts	12,000	6	Retail CDs	18,000	7
Loans less ALLL	80,000	10	Sub. Debt	14,000	8
Fixed Assets	10,000	NA	Total Equity	24,000	na
Other Earning Assets	4,000	9
Total Assets	134,000		Total L+E	134,000

4- You will want to use this information in the next 10 problems, including this one.

A- Megolopolis Bank has the below balance sheet. If it has $5,000 in net income, what is its return on equity? Please express as a %.

B- Using the same information, what is the bank's ROA? Please express as a %.

Assets		Liabs + Equity
Cash	9,000	Demand Deps	19,000
Investments	23,000	NOW accounts	89,000
Repo Agrees	42,000	Retail CDs	28,000
Loans	90,000	Debentures	19,000
Fixed Assets	15,000	Total Equity	28,000
Other Assets	4,000
Total Assets	183,000	Total L+E	183,000

C- In addition to the above balance sheet for Megalopolis, the summary income statement is shown below. What is the bank's asset utilization? Please express as a %.

Total Interest Income	20,000
Total Interest Expense	11,000
Net Interest Income	9,000
Provision for Loan Losses	2,000
Non-interest income	2,000
Non-interest expense	1,000
Income before taxes	8,000
Taxes	3,000
Net Income	5,000

D- Using the above information, what is the Bank's equity multiplier?

E- Using the above information, what is the bank's profit margin? Please express as a %.

F- Using the above information, what is the bank's interest expense ratio? Please express as a %.

G- Using the above information, what is the bank's provision for loan loss ratio? Please express as a %.

H- Using the above information, what is the bank's non-interest expense ratio? Please express as a %.

I- Using the above information, what is the bank's efficiency ratio? Please express as a %. FYI the answer is not in the typical bank rage of 50-70%.

J- Using the above information, what is the bank's loan/deposit ratio? Please express as a %.

Answer 1

Ques 1)

Part A) The given details are as follows

Taxable Rate = 30%

Municipal Bond Yield = 5%

Therefore, tax equivalent yield is 7.14%.

Part B)

Here, Treasury bond is giving yield of 7% pre tax and 4.9% post tax

& Municipal bond if giving yield of 7.14% pre tax and 5% post tax.

So , its better to choose Municipal bond over Treasury bond.