Answer-first summary for fast verification
Answer: Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$10.0
## Detailed Explanation To calculate the cumulative cash flows, we need to analyze the net cash flows at each maturity point: ### Assets Cash Inflows: - **Year 1**: Bonds mature = +$30.0 million - **Year 5**: Loans mature = +$40.0 million - **Year 7**: Loans mature = +$10.0 million - **Year 10**: Loans mature = +$20.0 million ### Liabilities Cash Outflows: - **Year 1**: Deposits mature = -$10.0 million - **Year 2**: Deposits mature = -$20.0 million - **Year 5**: Bonds mature = -$10.0 million - **Year 7**: Bonds mature = -$30.0 million - **Year 10**: Equity matures = -$20.0 million - **Beyond 10**: Bonds mature = -$10.0 million (not included in cumulative calculation) ### Net Cash Flows by Year: - **Year 1**: +$30.0 (assets) - $10.0 (liabilities) = +$20.0 million - **Year 2**: -$20.0 million (liabilities only) - **Year 5**: +$40.0 (assets) - $10.0 (liabilities) = +$30.0 million - **Year 7**: +$10.0 (assets) - $30.0 (liabilities) = -$20.0 million - **Year 10**: +$20.0 (assets) - $20.0 (equity) = +$0.0 million ### Cumulative Cash Flows: - **Year 1**: +$20.0 million - **Year 2**: +$20.0 (from Year 1) + (-$20.0) = +$0.0 million - **Year 5**: +$0.0 (from Year 2) + $30.0 = +$30.0 million - **Year 7**: +$30.0 (from Year 5) + (-$20.0) = +$10.0 million - **Year 10**: +$10.0 (from Year 7) + $0.0 = +$10.0 million Therefore, the correct cumulative cash flow structure is: - Year 1: +$20.0 - Year 2: +$20.0 (cumulative from Year 1) - Year 5: +$30.0 - Year 7: -$20.0 - Year 10: +$10.0 This matches **Option B**.
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Q-74. Geofinancial Bank currently has the following (very) simplified balance sheet:
Assets
| Bonds | $30.0 |
| Loans | $70.0 |
| / | / |
Liabilities
| Deposits | $30.0 |
| Bonds | $50.0 |
| Equity | $20.0 |
Further, the maturities of these accounts are as follows:
$30.0 million) expire in one year. In regard to the loans ($70.0), $40.0 million expire in five (5) years, $10.0 million expire in seven (7) years, and $20.0 million expire in ten (10) years.$30.0 million), $10.0 million expire in one (1) year, and $20.0 million expire in two (2) years. In regard to the bonds ($50.0 million), $10.0 million expire in five (5) years, $30.0 million expire in seven (7) years, and $10.0 million expire in beyond ten (>10) years.$20.0 million) is presumed to expire in ten (10) years.Which term structure of expected cumulative cash flows is accurate for Geofinancial Bank?
A
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$20.0
B
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$10.0
C
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$30.0
D
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$40.0
E
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$50.0
F
Year 1: +$20.0; Year 2: +$20.0; Year 5: +$30.0; Year 7: -$20.0; Year 10: +$60.0