16 questions. Use Show Answer, then slide right (or use Next) to continue.
What is the definition of historical Net Interest Income?
\[ \text{NII}_t=\text{II}_t-\text{IE}_t \]
Where:
How is interest income computed from loan-level rates and balances?
\[ \text{II}_t=\sum_{i=1}^{N} r_{i,t}\,B_{i,t} \]
Where:
How is interest expense computed from funding rates and funding balances?
\[ \text{IE}_t=\sum_{j=1}^{M} c_{j,t}\,F_{j,t} \]
Where:
What is the portfolio weighted average loan yield (WAS)?
\[ \text{WAS}_t=\frac{\sum_{i=1}^{N} r_{i,t}\,B_{i,t}}{\sum_{i=1}^{N} B_{i,t}} \]
Where:
How do we define total loan balance from loan-level balances?
\[ B_t=\sum_{i=1}^{N} B_{i,t} \]
Where:
What is the weighted average cost of funds (COF)?
\[ \text{COF}_t=\frac{\sum_{j=1}^{M} c_{j,t}\,F_{j,t}}{\sum_{j=1}^{M} F_{j,t}} \]
Where:
How do we define total funding balance from funding source balances?
\[ F_t=\sum_{j=1}^{M} F_{j,t} \]
Where:
How do we express NII exactly using \( \text{WAS}_t \), \( \text{COF}_t \), and their balance bases?
\[ \text{NII}_t=\text{WAS}_t\,B_t-\text{COF}_t\,F_t \]
Note: \(B_t\) and \(F_t\) are different balance bases; this is why the expression is not simply \(B_t(\text{WAS}_t-\text{COF}_t)\) unless you assume \(B_t\approx F_t\).
How is the loan portfolio balance forecasted forward one period?
\[ \widehat{B}_{t+1}=B_t+\widehat{\text{Orig}}_t-\widehat{\text{SchedPrin}}_t-\widehat{\text{Prep}}_t-\widehat{\text{CO}}_t \]
Where:
How do we convert a forecast prepayment rate into a forecast prepayment dollar amount?
\[ \widehat{\text{Prep}}_t=\widehat{\text{CPR}}_t\cdot B_t \]
Where:
How is the funding balance forecasted forward one period?
\[ \widehat{F}_{t+1}=F_t+\widehat{\text{DepIn}}_t-\widehat{\text{DepOut}}_t+\widehat{\text{Borrow}}_t-\widehat{\text{DebtRepay}}_t \]
Where:
How do we represent forecasting the portfolio asset yield \( \text{WAS} \)?
\[ \widehat{\text{WAS}}_{t+1}=f_{\text{asset}}\!\left(\text{market rates},\ \text{repricing},\ \text{new production pricing},\ \text{asset mix}\right) \]
Where:
How do we represent forecasting the cost of funds \( \text{COF} \)?
\[ \widehat{\text{COF}}_{t+1}=f_{\text{fund}}\!\left(\text{market rates},\ \text{deposit beta},\ \text{funding mix}\right) \]
Where:
What is the exact formula for forecasting NII one period ahead?
\[ \widehat{\text{NII}}_{t+1}=\widehat{\text{WAS}}_{t+1}\,\widehat{B}_{t+1}-\widehat{\text{COF}}_{t+1}\,\widehat{F}_{t+1} \]
How is forecast expected credit loss defined?
\[ \widehat{\text{EL}}_{t+1}=\widehat{PD}_{t+1}\cdot \widehat{LGD}_{t+1}\cdot \widehat{EAD}_{t+1} \]
Where:
How do we compute risk-adjusted forecast NII?
\[ \widehat{\text{RA-NII}}_{t+1}=\widehat{\text{NII}}_{t+1}-\widehat{\text{EL}}_{t+1} \]