Home assignment-1
FIN 403
1. If you know the following figures:
2. Suppose that a bank is expected to pay an annual dividend of $4 per share on its stock in the current
period and dividends are expected to grow 5 percent a year every year, and the minimum required return-
to-equity capital based on the bank’s perceived level of risk is 10 percent. Can you estimate the current value
of the bank’s stock?
3. National Bank has just submitted its Report of Condition to the FDIC. Please fill in the missing items from
its statement shown below (all figures in millions of dollars):
4. If you know the following figures:
5. The Mountain High Bank has Gross Loans of $750 million with an ALL account of $45 million. Two years
ago, the bank made a loan for $10 million to finance the Mountain View Hotel. Two million in principal was
repaid before the borrowers defaulted on the loan. The Loan Committee at Mountain High Bank believes
the hotel will sell at auction for $7 million and they want to charge off the remainder immediately.
a. The dollar figure for Net Loans before the charge-off is?
b. After the charge-off, what are the dollar figures for Gross Loans, ALL, and Net Loans assuming no other
transactions?
c. If the Mountain View Hotel sells at auction for $8 million, how will this affect the pertinent balance sheet
accounts?
6. Suppose a bank has an ROA of 0.80 percent and an equity multiplier of 12X. What is its ROE? Suppose this
bank’s ROA falls to 0.60 percent. What size equity multiplier must it have to hold its ROE unchanged?
7. Along with the Report of Condition submitted above, Jasper has also prepared a Report of Income for the
FDIC. Please fill in the missing items from its statement shown below (all figures in millions of dollars):
8. Suppose a bank reports net income of $12, pretax net income of $15, operating revenues of $100, assets
of $600, and $50 in equity capital. What is the bank’s ROE? Tax-management efficiency indicator? Expense
control efficiency indicator? Asset management efficiency indicator? Funds management efficiency
indicator?
9. A bank reports that the total amount of its net loans and leases outstanding is $936 million, its assets total
$1,324 million, its equity capital amounts to $110 million, and it holds $1,150 million in deposits, all
expressed in book value. The estimated market values of the bank’s total assets and equity capital are $1,443
million and $130 million, respectively. The bank’s stock is currently valued at $60 per share with annual per-
share earnings of $2.50. Uninsured deposits amount to $243 million and money-market borrowings total
$132 million, while nonperforming loans currently amount to $43 million and the bank just charged off $21
million in loans. Calculate as many of the risk measures as you can from the foregoing data.
10. Suppose a bank has an allowance for loan losses of $1.25 million at the beginning of the year, charges
current income for a $250,000 provision for loan losses, charges off worthless loans of $150,000, and
recovers $50,000 on loans previously charged off. What will be the balance in the allowance for loan losses
at year-end?
11. If a bank has a net interest margin of 2.50%, a noninterest margin of -1.85%, and a ratio of provision for
loan losses, taxes, security gains, and extraordinary items of -0.47%, what is its ROA?
12. The latest report of condition and income and expense statement for Happy Merchants National Bank
are as shown in the following tables:
