Sold money market instruments mmi raise funds
AUS Bank, a community bank that operates in the AUS campus only, sold money market instruments (MMI) to raise funds. Those MMI have a coupon rate of 5% and coupons are paid annually. The principal amount of those MMI is $500 and they mature in 2 years. The yield to maturity is 11%. What is the value of those MMI?
AUS bank gave loans that have average interest rates of 8% and interests are paid annually. The principal amount of loans is $1,000 and they mature in 5 years. The yield to maturity is 11%. What is the value of those loans? (Assume that loans are treated as if they are bonds).
Answer:
Overview of bank and services provided by it
Analysis of components
Balance sheet component –
It can be stated that the net interest margin of the company over the last 10 years period are majorly in decreasing trend and ranged between 0.071 and 0.727. From 2008 to 2009 it increased from 0.369 to 0.727, however, since then it is in reducing trend and reached to 0.071 in 2016 (Wani, Haque & Raina, 2019). The non-interest margin of the bank followed the same trend and reduced to 0.039 in 2017 from 0.442 in 2009. Bank has been deteriorated in terms of providing return on shareholder’s fund (Heikal, Khaddafi & Ummah, 2014). It has been reduced to 0.118 in 2017 from 0.224 in the year 2008. PLL to total loan ratio of the bank also increased to 0.038 in 2017 from 0.007 in 2013. It states that the company is increasing its provision towards provision for loan losses as against the total amount of loans over the last 10 years. ALL to total loan ratio of the bank also increased for the bank keeping the pace with PLL. It has been increased to 0.044 in 2017 from 0.039 in the year 2013. It states that the company is increasing its allowance towards provision for loan losses as against the total amount of loans over the last 5 years.
Comparison with HSBC
It indicates the profitability of the company as compared to total assets of the company. It reveals the efficiency of the company with regard to management of the assets. In other words, it measures total income that is produced by the bank’s total assets during the period under consideration. In case of First ABU Dhabi Bank it can be stated that ROA of 1.40% indicates that for each dollar of asset it earns 0.14 dollar of income that is quite low (Anugrah & Syaichu, 2017).
Reference
Heikal, M., Khaddafi, M., & Ummah, A. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), 101.
Hsbc.ae. (2018). Personal banking - Banks in UAE | HSBC UAE . [online] Retrieved 22 October 2018, from https://www.hsbc.ae/1/2/