Problem 1: NewBank started its first day of operations with $6 million in capitol. $100 million in checkable deposits received. The bank issues a $25 million commercial loan and another $25 million in mortgages, with the following terms:
Mortgages: 100 standard 30-year fixed-rate mortgages with a nominal annual rate of 5.25% each for $250,000
Commercial loan: 3-year loan, simple interest paid monthly at 0.75% per month
If required reserves are 8%, what does the bank balance sheets look like? Ignore any loan loss reserves.
Problem 2: NewBank decides to invest $45 million in 30-day T bills. The T-bills are currently trading at $4986.70(including commission) for $5000 face value instrument. What does the balance sheet look like?
Problem 3: On the third day of operations, deposits fall by $5 million. What does the balance sheet look like? Are there any problems?
Problem 4: To meet any shortfall in the previous question, NewBank will borrow the cash in the federal funds market. Management decides to borrow the needed funds for the remainder of the month (now 29 days). The required yield on a discount basis is 2.9%. What does the balance sheet look like after this transaction?