A bond you are evaluating has a 10 percent coupon rate (compounded semiannually), a $1,000 face value, and is 10 years from maturity. ( LG 3-4)
a. If the required rate of return on the bond is 6 percent, what is its fair present value?
b. If the required rate of return on the bond is 8 percent, what is its fair present value?
c. What do your answers to parts (a) and (b) say about the relation between required rates of return and fair values of bonds?
1. A Section 20 subsidiary of a major U.S. bank is planning to underwrite corporate securities and expects to generate $5 million in revenues. It currently underwrites U.S. Trea- sury securities and general obligation municipal bonds and earns annual fees of $40 million. (LG 13-3)
2. A. Is the bank in compliance with the laws regulating the turnover of Section 20 subsidiaries?
3. If it plans to increase underwriting of corporate securities and generate $11 million in revenues, is it in compliance? Would it have been in compliance prior to passage of the Financial Services Modernization Act of 1999?
Two depository institutions have composite CAMELS ratings of 1 or 2 and are "well capitalized." Thus, each institution falls into the FDIC Risk Category I deposit insurance assessment scheme. Institutions A has average total assets of $750 million and average Tier I equity of $75 million. Institution B has average total assets of $1 billion and average Tier I equity of $110 million. Further, the institutions have the following financial ratios and CAMELS ratings: (LG 13-4)
Tier I leverage ratio (%) 10.25 7.00
Loans past due 30-89 days/gross assets (%) 0.60 0.82
Nonperforming assets/gross assets (%) 0.45 0.90
Net loan charge-offs/gross assets (%) 0.08 0.25
Net income before taxes/risk-weighted assets (%) 2.40 1.65
Adjusted brokered deposits ratio (%) 0.00 25.89
CAMELS components:
C 1 2
A 1 1
M 1 1
E 2 1
L 1 3
S 2 3
Calculate the deposit insurance assessment for each institution.