March 2002
Intermediate to advanced
176 pages
3h 48m
English
book
Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
by Jean Dermine, Youssef F. Bissada
Content preview from Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition
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Solution to Stage Two
| 1: | 
Consider a bank with an initial equity of 100, an ROE of 10%, and a life of three years. The profit is paid every year as a dividend plus a closing dividend of 110 at the end of three years. Compute the market value and value creation for the cases when the market discounts are at 12%, 10% and 8%.
Managerial lesson To create value, the ROE must exceed the market discount rate, the cost of equity. |
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