Assignment:
Questions
1. Determine the investment portfolio composition for Kent's eastern branch that would maximize the expected effective yield while satisfying the restriction imposed by the parent.
2. What is the expected effective yield of the investment portfolio?
3. Based on the expected effective yield for the portfolio and the initial investment amount of $15 million, determine the annual interest to be earned on the portfolio.
4. Determine the financing portfolio composition for Kent's western branch that would maximize the expected effective financing rate while satisfying the restriction imposed by the parent.
5. What is the expected effective financing rate of the total amount borrowed?
6. Based on the expected effective financing rate for the portfolio and the total amount of $15 million borrowed, determine the expected loan repayment amount beyond the principal borrowed.
7. When the expected interest received by the eastern branch and paid by the western branch of Kent Co. are consolidated, what is the net amount of interest received?
8. If the eastern branch and the western branch worked together, the eastern branch could loan its $15 million to the western branch. Nevertheless, one could argue that the branches could not take advantage of interest rate differentials or expected exchange rate effects among currencies. Given the data provided in this example, ould you recommend that the two branches make their short-term investment financing decisions independently, or should the eastern branch lend its excess cash to the western branch? Explain.