Essay about Fnan 321 Hw9

2119 Words Mar 3rd, 2013 9 Pages
Financial Institutions FNAN 321 Homework #9

Instructions 1. Order: Questions must be submitted in order. Any homework assignment with questions or parts of questions that are submitted out of order will receive no credit. The term order refers to the question numbers on the assignment. For example, if there are 5 questions, then the submitted solutions must be numbered from 1 to 5 in numerical order and each question must be answered completely under the appropriate number. Questions with subparts must also be answered in order.

2. Complete Assignment: to complete the assignment you must attempt all of the assigned problems/questions. If any of your answers are left blank or do not show sufficient effort the assignment will be marked
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However, the best way to raise large amounts of capital quickly is with a new issue.

c) How much did Collin-File need to raise in demand deposits to finance these loans and how much more were they required to hold in reserves after issuing the loans? Assume the Federal Reserve requires 10% of demand deposits be held in reserve. Collin-File will finance $7,000,000 using equity capital which leaves 168,000,000 in mortgages that must be financed using demand deposits. Therefore, to find the amount of demand deposits that Collin-File must raise, we solve the equation below for X.

X (1 − .1) = 168,000,000 → X =

168,000,000 = $186,666,666.67 .9

So, Collin-File must raise $186,666,666.67 to satisfy its lending obligations and the reserve requirement. The increase in reserve requirements is then 186,666,666.67 – 168,000,000 = 18,666,666.67

d) Assuming that the FDIC risk-based insurance premium is 3%, how much more must Collin-File’s pay in FDIC insurance as a result of issuing the new loans. To find the additional FDIC premium, we multiply the increase in demand deposits by the 3% FDIC insurance premium.

($186,666,666 .67 )(0.03) = 5,600,000 .00

e) What is the total regulatory tax that Collin-File is required to pay due to issuing the new loans and how can they avoid paying these taxes. To find the total regulatory tax, we sum the increase in equity, the

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