Money saved through mutual funds is always safer than money kept in a bank checking account. Is the statement true? Why or why not? (DO NOT EXCEED THE SPACE GIVEN BELOW)
- 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).
b)Recently, the UAE Central Bank raised interest rates following the recent credit tightening around the world. Assume that the change affects AUS MMI by 1% and loans by 2%. Find % change in AUS bank Equity after the increase in interest rates.
Please calculate Fed Funds Sold:
“PLL is a % of bank loans and it is deducted from bank income every year. PLL is added to ALL account, an accumulative contra asset account. Hence, ALL must go up every year.” Is the statement true and why?
“Banks borrow from non-deposit sources unnecessarily.” Do you agree and why?Please refer to case #1 and answer why existing banks may not achieve similar results as Al Hilal’s? “The downward sloping yield curve affects banks, and hence it may results in recessions.” Is the statement correct? Explain with few sentences within the space provided below (you could draw the yield curve below the lines to show the relationship.)