Submitted Tutorial Questions I Total : 5 marks You must submit your work electronically via Turnitin Assignment tool on MyUni by 11.59pm on Friday, August 28th. The link for the Turnitin Assignment...

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Submitted Tutorial Questions I Total : 5 marks You must submit your work electronically via Turnitin Assignment tool on MyUni by 11.59pm on Friday, August 28th. The link for the Turnitin Assignment tool has been created under “Assignments” page entitled “Tutorial Submission I” on the MyUni Site. Student who copies tutorial answers from the textbook manual or any other sources will receive mark of zero for submission of work. Tute 1 : Overview of Financial Institutions 1. How do financial institutions help individual savers diversify their portfolio risks? (0.5 marks) 2. How can individual savers use financial institutions to reduce the transaction costs of investing in financial assets? (1 mark) Tute 3 : Interest Rate Risk (Maturity Model) 3. ABC Bank has the following market value balance sheet (in millions, all interest at annual rates). All securities are selling at par equal to book value. ( 2 marks) Assets $ Liabilities and equity $ Cash 30 Demand deposits 100 15-year commercial loan at 8% interest, balloon payment 170 5-year CDs at 4% interest, balloon payment 200 30-year mortgages at 6% interest, balloon payment 300 20-year debentures at 5% interest, balloon payment 150 Equity 50 Total assets 500 Total liabilities and equity 480 a) What is the maturity gap for ABC Bank? b) What will be the maturity gap if the interest rates on all assets and liabilities increase by 1 per cent? c) What will happen to the market value of the equity? 4. If a bank manager is certain that interest rates were going to decrease within the next six months, how should the bank manager adjust the bank's maturity gap to take advantage of this anticipated decrease? What if the manager believes rates will raise? (1.5 marks)