A Bank has $100 million in capital, and $900 million of checkable deposit. The bank...
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Accounting
A Bank has $100 million in capital, and $900 million of checkable deposit. The bank currently maintains a total reserve of $100 million dollars, $200 million in T-bills, and rest in loans. A new corporate customer opens a checkable deposit account, and deposit $100 million.
Suppose the T-bill yield 1.44%, the Libor is 1.83%, average residential mortgage rate is 5.5%, and average corporate loan is 7%. What is the new ROE? Assume the new structure yield a profit margin of 13%.
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