Explanation:
To determine the term structure of expected cash flows, we calculate the net cash flows at each maturity bucket.
Inflows (Assets):
$30.0 (Bonds)$40.0 (Loans)$10.0 (Loans)$20.0 (Loans)Outflows (Liabilities & Equity):
$10.0 (Deposits)$20.0 (Deposits)$10.0 (Bonds)$30.0 (Bonds)$20.0 (Equity)Year 10:
$10.0(Bonds)
Net Expected Cash Flow (Net = Inflow - Outflow):
$30.0 - $10.0 = +$20.0$0.0 - $20.0 = -$20.0$40.0 - $10.0 = +$30.0$10.0 - $30.0 = -$20.0$20.0 - $20.0 = $0.0Year 10:
$0.0-$10.0= -$10.0
The accurate series would graph these net expected cash flows (+20 in Year 1, -20 in Year 2, +30 in Year 5, -20 in Year 7, 0 in Year 10, and -10 in > Year 10) across the respective maturities. (Note: Since images for the series are not provided, Option A is selected as a placeholder for the correct graph).
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| Assets | Liabilities | ||
|---|---|---|---|
| Bonds | $30.0 | Deposits | $30.0 |
| Loans | $70.0 | 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) yearsWhich term structure of expected cash flows is accurate for Geofinancial Bank?
A
Series A
B
Series B
C
Series C
D
Series D
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