Page 188 - CAPE Financial Services Syllabus Macmillan_Neat

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6. Source Bank has started its operations with $25 million in capital. Three hundred million dollars in
checkable deposits is received. The bank issues $15 million in car loans, $50 million in commercial
loans and another $100 million in mortgages. The following terms are stated on the loans

• Car loan: 5-year loan, simple interest paid monthly at 0.85% per month.
• Mortgages: 100 standard 30-year fixed-rate mortgages with a nominal annual rate of 8.25%

each for $1,000,000.
• Commercial loan: -year loan, simple interest paid monthly at 0.85% per month.

(a) If required reserves are 10%, show an extract of the bank’s balance sheet in the space
provided below. Ignore any loan loss reserves.

[6 marks]

(b) Source Bank’s regulators require a capital adequacy ratio of 10%. Calculate the capital
adequacy ratio for Source Bank and explain your findings.

[4 marks]
02269020/CAPE/SPEC 2016 GO ON TO THE NEXT PAGE

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