• 1. Suppose that a bank holds cash in its vault of $1.

4 million, short-term
government securities of $12.4 million, privately issued money market
instruments of $5.2 million, deposits at the Federal Reserve banks of
$20.1 million, cash items in the process of collection of $0.6 million,
and deposits placed with other banks of $16.4 million. How much in
primary reserves does this bank hold? In secondary reserves?
• 2. Suppose a bank has an allowance for loan losses of $1.25 million at
the beginning of the year, charges current income for a $250,000
provision for loan losses, charges off worthless loans of $150,000, and
recovers $50,000 on loans previously charged off. What will be the
balance in the allowance for loan losses at year-end?
Norfolk National Bank has just submitted its Report of Condition to the FDIC. Please fill
in the missing items from its statement shown below (all figures in millions of dollars):
• Suppose a banker tells you that his bank in the year just completed
had total interest expenses on all borrowings of $12 million and
noninterest expenses of $5 million, while interest income from
earning assets totaled $16 million and noninterest revenues totaled
$2 million.
Suppose further that assets amounted to $480 million, of which
earning assets represented 85 percent of that total while total
interest-bearing liabilities amounted to 75 percent of total assets. See
if you can determine this bank's net interest and noninterest margins
and its earnings base and earnings spread for the most recent year.
• Suppose a bank reports net income of $12, pre-tax net income of $15,
operating revenues of $100, assets of $600, and $50 in equity capital.
What is the bank's ROE? Tax-management efficiency indicator?
Expense control efficiency indicator? Asset management efficiency
indicator? Funds management efficiency indicator?
• A bank reports that the total amount of its net loans and leases
outstanding is $936 million, its assets total $1,324 million, its equity
capital amounts to $110 million, and it holds $1,150 million in
deposits, all expressed in book value. The estimated market values of
the bank's total assets and equity capital are $1,443 million and $130
million, respectively. The bank's stock is currently valued at $60 per
share with annual per-share earnings of $2.50. Uninsured deposits
amount to $243 million and money-market borrowings total $132
million, while nonperforming loans currently amount to $43 million
and the bank just charged off $21 million in loans. Calculate as many
of the risk measures as you can from the foregoing data.
• 1. Suppose Carroll Bank and Trust reports interest-sensitive assets of
$570 million and interest-sensitive liabilities of $685 million. What is
the bank’s dollar interest-sensitive gap? Its relative interest-sensitive
gap and interest-sensitivity ratio?
• 2. Suppose that a thrift institution has an average asset duration of
2.5 years and an average liability duration of 3.0 years. If the thrift
holds total assets of $560 million and total liabilities of $467 million,
does it have a significant leverage-adjusted duration gap? If interest
rates rise, what will happen to the value of its net worth?
year CF Discount factor PV PV*t
1 100 1.1 ..

2 100 1.1^2 ..
3 100 1.1^3
4 100 1.1^4
5 1100 1.1^5
Sum …
• A government bond currently carries a yield to maturity of 7 percent
and a market price of $1161.68. If the bond promises to pay $100 in
interest annually for five years, what is its current duration?