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End of the terms questions to be revised p.227: 2.17, 2.18 2.17. When ranked from lowest to highest the bidders be G, D, E and F, A, C, H, and B. Individuals G, D, E, and F bid for 170, 000 shares in total. Individual A bid for a further 60,000 shares. The price paid by the investors is therefore the price bid by A (i.e., $50). Individuals G, D, E, and F get the whole amount of the shares they bid for. Individual A gets 40,000 shares. 2.18. If it succeeds in selling all 10 one million million shares in a best efforts arrangement, its fee bequeath be $2 million. If it is able to sell the shares for $10.20, this will also be its profit in a firm commitment arrangement. The decision is probably to hinge on a) an estimate of the probability of selling the shares for more(prenominal) than $10.20 and b) the investment banks appetite for risk. For example, if the bank is 95% certain that it will be able to sell the shares for more than $10.20, it is likely to lease a firm commitment. But if assesses the probability of this to be save 50% or 60% it is likely to choose a best efforts arrangement. p.256:14, 15 14.The assets fall in hold dear by $8 million ( $100 million ( ?2% ( 4 old age) spell the liabilities fall in value by $10.8 million ( $90 million ( ?2% ( 6 years).

Because the liabilities fall in value by $2.8 million more than the assets do, the net worth of the bank rises by $2.8 million. The interest- roam risk can be reduced by shortening the maturity of the liabilities to a duration of four years or lengthening the maturity of the assets to a duration of vi years. Alternatively, you could engage in an interest-rate swap, in which you swap the interest realise on your assets with the interest on another banks assets that have a duration of six years. 15.The gap is $10 million ($30 million of rate-sensitive assets minus $20 million of rate-sensitive liabilities). The change in bank profits from the interest rate rise is + $0.5 million (5% ( $10 million); the...

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