Financial Markets and Institutions
A bank estimates that its profit next year is normally distributed with a mean of 0.8% of assets and the standard deviation of 2% of assets. How much equity (as a percentage of assets) does the company need to be (a) 99% sure that it will have a positive equity and (b) 99.9% sure that it will have a positive equity at the end of the year? Ignore taxes.
To be 99% sure, z-score = 2.33
.0466 = x - .8%
x = 5.46%
To be 99.9% sure, z-score = 3.62
.0724 = x - .8%
x = 8.04%
The bidders in a Dutch auction are as follows:
Bidder | Number of Shares | Price |
A | 60,000 | $50.00 |
B | 20,000 | $80.00 |
C | 30,000 | $55.00 |
D | 40,000 | $38.00 |
E | 40,000 | $42.00 |
F | 40,000 | $42.00 |
G | 50,000 | $35.00 |
H | 50,000 | $60.00 |
The number of shares being auctioned is 210,000. What is the price paid by investors? How many shares does each investor receive?
Bidder B- 20,000 shares
Bidder H- 50,000 shares
Bidder C- 30,000 shares
Bidder A- 60,000 shares
Bidder E- 25,000 shares
Bidder F- 25,000 shares
All bidders pay $42.00 per share. Bidders E and F do not get all of the shares they wanted, so they split the remaining 50,000 shares after the higher bidders received their shares.
Suppose that in a certain defined pension plan,
(a) Employees work for 45 years earning wages that increase at a real rate of 2%
(b) They retire with a pension equal to 70% of their final salary. This pension increases at the rate of inflation minus 1%
(c) The pension is received for 18 years
(d) The pension fund’s income is invested in bonds which earn the inflation rate plus 1.5%
Estimate the percentage of an employee’s salary that must be contributed to the pension plan if it is to remain solvent.
I could not follow the excel demonstration in class and spent a very long time trying to figure this question out. In the end, I...