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Bonds Finance Annual Interest Income

There's a commercial bank is only answer I loan portfolio $100 million for 30 year fixed-rate mortgages with annual payments and who's only liabilities are single 90,000,000 1 yr certificate of deposit which gets reissued every year at the market rate of interest.  the 30 year mortgages have an average interest rate of 6% and CD currently has an interest rate 3%
A) calculate the annual interest income, annual interest expense on the CD, and the net interest income for the bank (interest  income - interest expense)

B) calculate the return on assets for the bank assume after one year interest rate rise by for 4% short-term interest rates for one year CDs right to 7% repeat .
C) assume that after one year interest rates fall by 2% interest rate for one year CDs fall to 1%

three-year thousand dollars face value treasury zero-coupon security cells today for 851.6137 when the consumer price index is 192. assume the real rate of interest is 2%. Use formula R=r+inflation.
A) calculate the three-year nominal interest-rate (bond yield) on the bond(R)
B) calculate the expected average annual compound inflation rate over the next three years.
C) if the CPI in three years is 216 calculate the average annual compound rate of actual inflation over the three years using a time value money calculation based on the formula pv(1+I)^n=fv
D) if the CPI in three years is 210 calculate the actual real rate of interest earned on the bond following the same procedure as an part C

Solution Summary

Bond finance annual interest income is examined. The return on assets for the banks are calculated.