Name: Wayne Jones

Chapter 3 Homework Exercises

Question 1
a)
Loan A interest= $120000*0.07= $8400
Loan A upfront amount= $120000-$8400=$111600
Loan B interest= $110,000*0.06=$6600
Loan B upfront amount=$110000- $6600=$103400
Loan C interest= $130000*0.065=$8450
Loan C upfront amount=$130000- $8450=$121550
Loan C has the most upfront money
b)
Effective interest rate=interest/upfront amount*100

Effective interest rate for loan A= (8400/111600)*100=7.53%

Effective interest rate for loan B= (6600/103400)*100=6.38%
Effective interest rate for loan C= (8450/121550)*100=6.95%

Loan B has the lowest effective interest rate.

Question 2

a)
Interest rate or effective cost=16000/175000=9.14%

b) Interest amount at 9 percent= 175000*0.09= $15750

Upfront money =175000-15750=$159250
Percent interest rate or effective cost= 15750/159250=9.89%.

Question 3.
A)
Loans=2* security amount=2*4 million=8 million.
Total assets= Securities +loans+cash+other assets
Total assets= $4 million +$8 million+$1 million+$2 million
Total Assets +$15 million.

B)

Total assets= Securities +loans+cash+other assets

 Loans=Total Assets –(securities +cash+other assets)
Loans=$12 million –($4 million +$1 million+$2 million)
Loans=$5 million

C)

New securities value= $4 million-1 million=$3 milion

Loans=Total Assets –(securities +cash+other assets)
Loans=$11 million –($3 million +$1 million+$2 million)
Loans=$5 million

Question 4
a)

Total liabilities and stockholder’s equity =Deposits+ other liabilities+ Stockholders

equity
Stockholder equity=0.5* other liabilities =0.5*4 million=$2 million
Total liabilities and stockholder’s equity =$ 9 million+4 million+2 million=$15 Million
b) Stockholders equity= total liabilities –(deposits+other liabilities)
Stockholders equity= 15.5 million –($9 milion+$4 million)
Stockholders equity=$ 2.5 milion
c) Stockholders equity= total liabilities –(deposits+other liabilities)
New amount of deposits= $9 million-1 millon=$8 million
Stockholders equity= $14 million –($8 million+4 million)
Stockholders equity= $2 million

Question 5
a)
Total assets= Vault cash+Government securities+ cash in collection+Loans to individuals+ loans
secured by real estate+ Fed Fund Purchased+Bank premises
Total assets= $2 million+$5 million+$ 4 million+$ 7 million+$9 million+$4 million+$11
million=$42 million
 b.
Total liabilities= Demand Deposits+ Nontransaction Accounts.
Total liabilities= $13 million+ $20 million
Total liabilities=$33 million

c. Stockholders equity Account=Total assets-liabilities

Stockholders equity Account=$42 million-$33 million=$9 million

Question 6

Assets Amount( Liabilities Amount(

$ $
millions) millions)
Cash 5 Demand deposits 20
Loans secured by Real 30 Owner’s capital 6
estate
Commercial and industrial 18 Federal fund purchased 6
loans
Government securities 7 Time and savings deposits 40
owned
Bank’s fixed Assets 14 Other long-term liabilities 2
Total assets $ 74 Total liabilties $ 74
million million