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Please consider a bank with the following balance sheet: Assets Liabilities 8 year Treasury bond, $2000 face value, 2% annual coupon, 7% yield 1 year Certificate of Deposit (CD), $1000 face value, 4% annual coupon, 4% yield Equity $402.87   What is the modified duration of equity of this bank? 

A Treasury bond with a 4-year maturity, $1000 face value, and an annual 1 percent coupon is trading at a yield to maturity of 5%. The duration of this bond is 3.94. If interest rates were to decrease by 2 percent, please use the duration to approximate the percentage change in bond price. 

Use the following simplified bank balance sheet for Gourd Bank to answer the following two questions. Assume that the bank has no off-balance-sheet activities.    Assets Book Value Risk weight Cash + Reserves $10 0% Treasuries $50 0% Commercial Loans BB+ $80 100% Single Family Mortgages $100 50% Mortgage-Backed Securities $90 30% Commercial Loans CCC+ $60 150% Reserve for Loan Losses (-$10) N/A     Liabilities   Book Value Capital Type Deposits $370 – Common Stock $8 Tier 1 Retained Earnings $4 Tier 1 Subordinated Debt $8 Tier 2     Tier 2 capital component limits: Reserve for loan losses: maximum of 1.25% of risk-weighted assets. Subordinated debt: maximum of 50% of Tier 1 capital.     Gourd Bank.xlsx

All of the following are benefits for firms that go public EXCEPT:

All else equal, loans with better collateral have lower expected returns

All of the following are functions of investment banks EXCEPT:

Alpha Bank expects a 7% return on a $5000 one-year loan that has an interest rate of 10% and a 90% probability of repayment. The required rate of return on the loan is 4%   Question: What is the NPV of this loan?

What is the duration of a five-year Treasury bond with a $1000 face value and a 3 percent coupon paid semi-annually, trading at a yield to maturity of 7%?

Alpha Bank expects a 7% return on a $5000 one-year loan that has an interest rate of 10% and a 90% probability of repayment. The required rate of return on the loan is 4%   Question: Calculate the expected recovery rate on the loan.

Commercial banking regulation does not apply to investment banks.