Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute the price of the loan next year (just before the first coupon is paid) if the borrower is upgraded to an A rating .

Use the following information on the given loan to answer the questions below- assume the payoffs occur one year from now and everything is normalized to a $1 investment:   Probability Loan payoffs Rf bond Corp Bond State 1 No Default 0.9 1.08 1.05 1.1 State 2 Default 0.1 0.90 1.05 0.5 Price ? $1 $.98   What is the market price of this loan?

A Financial Institution (FI) originates a pool of 500 30-year mortgages with monthly payments, each averaging $150,000 with a mortgage coupon rate of 8 percent. Assume that the entire mortgage portfolio is securitized to be sold as GNMA pass-throughs. The GNMA credit risk insurance fee is 6 basis points and that the FI’s servicing fee is 19 basis points. Assume no prepayments. What is the total amount of monthly mortgage payments from mortgage borrowers to the pool?

Which of the following is not a possible reason for IPO underpricing, as shown by the studies on this topic?

Reserve-backed stablecoins most closely resemble which of the following financial intermediaries?

A contractual commitment to make a loan up to a stated amount at a given interest rate in the future is a loan commitment. 

Suppose there are two ratings categories: A and B, along with default. The ratings-migration probabilities look like this for a B-rated loan:   Rating in 1 year Probability A 0.07 B 0.92 Default 0.01     The yield on A rated loans is 4%; the yield on B rated loans is 5%. All term structures are flat (i.e. forward rates equal spot rates). A loan in default pays off 40% of its face value (e.g. $40) You have one loan in your portfolio, B-rated, 3-year, 5% coupon (paid annually), with $100 face value.   Compute next year’s expected value for the loan.

ST loans (6 months) $50M Demand Deposits $300M LT loans (5 years) $200M 3-Month CD $100M 3 month Treasuries $100M Equity $50M 30-year (fixed rate) mortgage $100M   Consider the above bank balance sheet. Using the Repricing (Funding GAP) Model using a 1-year horizon, what is the impact of a 1% rate increase on the net interest income of the bank? How does the assumption about whether demand deposits are rate sensitive impact this effect?

  The above figure documents the total amount of bank lending around the 2008 crisis. Why did bank lending increase during this crisis? (Write 1-3 sentences)

If the duration gap (ADA-LDL) is zero, then the balance sheet of a bank is immunized against interest rate risk.