The following is the balance sheet of GHI Bank for 2018 in book values. Interest

ID: 1171723 • Letter: T

Question

The following is the balance sheet of GHI Bank for 2018 in book values. Interest rates are averages, and payment terms are annual. Book Value-market value.

Consumer Loans, 5 years, 6% $350 million

Savings deposits, 3 years, 4% $ 525 million

Mortgage Loans, 20 years, 9% $300 million

Equity $ 75 million Total Assets $650 million

Total Liabilities and Equity $650 million

If the current market value of the loans and deposits are expected to increase by 2%, what is the expected impact on the value of equity. Show the new balance sheet.

Explanation / Answer

663

If the Current market value

increased by 2% ,

then the bank are required

to maintain her balance so

the bank has issue new equity share

of amounting to $2.5Million

by which bank can maintain his balance.

Old Balancesheet (in$) as per Book Value Equity 75 Consumers loan 350 Reserve and surplus 50 Mortgage loan 300 Saving Deposits 525 650 650 Old Balancesheet (in$) as per Market value Equity 77.5 Consumers loan 357 Reserve and surplus 50 Mortgage loan 306 Saving Deposits 535.5