Higher interest rates lead to lower bond convexity, ceteris paribus.
If you were born in 1994, you will reach your full-benefit retirement age for Social
Security in 2061.
True
False
When the quantity of a financial security supplied or demanded changes at every given
interest rate in response to a change in a factor, this causes a shift in the supply or
demand curve.
Banks have an average total debt ratio of about 90 percent.
Stable-value funds operate much like bond funds but can only be purchased through an
employer-sponsored retirement plans.
True
False
The higher a bond’s coupon, the lower the bond’s price volatility.
In cumulative voting, a stockholder who owns 51 percent of the shares can be assured
of the ability to elect the entire board of directors.
Recently, oil prices have risen in the United States, generating concerns that inflation
may increase. If the Fed wishes to ensure that inflation does not get out of hand, the Fed
could Ereduce reserve requirements at banks.
A.intervene in the currency markets to push the value of the dollar down.
B.decrease the discount rate.
C.lower the target Fed funds rate.
D.lower the target money supply growth rate.
The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488
percent. If the face value is $1,000, what should be the QUOTED cost of the bond
today (use semiannual compounding)?
A.103:6
B.103:7
C.103:8
D.103:9
E.103:10
A bond that pays interest semiannually has a 6 percent promised yield and a price of
$1,045. Annual interest rates are now projected to increase 50 basis points. The bond’s
duration is five years. What is the predicted new bond price after the interest rate
change? (Watch your rounding.)
((-5/1.03) x 0.0050 x $1,045) + $1,045
A.$1,020.35
B.$1,069.65
C.$1,070.36
D.$1,019.64
E.None of the options presented
The act of recommending someone to another for possible employment is a job referral.
a.True
b.False
A worker covered by a health care plan might have to pay the first $1000 of any health
expenses during a year. This requirement is called the
a.coinsurance.
b.use-it-or-lose-it rule.
c.variance.
d.deductible.
Molly went to her bank, gave the teller $200 plus a small fee, and received ten $20
checks that do not have a payee identified. What kind of checks were these?
a.Certified checks
b.Money orders
c.Cashier’s checks
d.Traveler’s checks
An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate
and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent
interest is equivalent to a corporate bond paying _____ interest.
A.11.79 percent
B.10.17 percent
C.9.08 percent
D.9.68 percent
E.8.47 percent
A professional futures trader who buys and sells futures for his own account throughout
the day but typically closes out his positions at the end of the day is called a
A.floor broker.
B.day trader.
C.position trader.
D.specialist.
E.hedger.
In ____ plans, employees control the assets in their accounts are invested.
a.defined-benefit
b.defined-contribution
c.pension
d.cash-balance
Figure 9-1
Janice and Ronald have decided to finance their first home with First American Bank.
They are buying their home for $210,000 and making a 20 percent down payment. They
will also be paying $3,000 in closing costs. First American has offered them the
following mortgage alternatives:
Interest Rate
Loan Term# of
PointsMonthly
Payment
Caps
15.5 percent fixed30 years1 $953—–
25 percent fixed30 years2 $902—–
33.5 percent fixed15 years1 $1,201—–
44.75 percent ARM30 years2 $8761 percent/year,
5 percent total
54.75 percent ARM30 years2 $8760 first two years/2 percent per year
thereafter
Refer to Figure 9-1. If Janice and Ronald choose loan 3, how much will their total
outlay be when they close?
a.$1,680
b.$3,000
c.$4,680
d.$46,680
If all preferred dividend payments that have been missed must be paid before any
common stock dividend can be paid, the preferred stock is called _____________
preferred stock.
A.cumulative
B.participating
C.nonparticipating
D.voting
E.dual class
Mortgage payments are ____________ on a 15-year fixed-rate mortgage than on a
30-year fixed-rate mortgage, and ____________ is paid on a 15-year mortgage than on
a 30-year mortgage; ceteris paribus.
A.lower; less interest
B.lower; less principal
C.higher; less interest
D.higher; more principal
E.higher; more interest
A 10-year annual payment corporate coupon bond has an expected return of 11 percent
and a required return of 10 percent. The bond’s market price is
A.greater than its PV.
B.less than par.
C.less than its E(r).
D.less than its PV.
E.$1,000.00.
Dave Scott’s total income is $52,000, but his taxable income is only $39,625. Therefore,
his tax liability is $5,763. Dave’s average tax rate is approximately ____ percent.
a.11.1
b.14.5
c.15.0
d.25.0
What is the loanable funds theory of interest rates?
What must net noninterest income (net of noninterest expense) be in order for FNB to
have a 12 percent ROE? Based on your answer, must FNB be performing better or
worse than the industry average in this area? Explain.
A U.S. FI has US$200 million worth of one-year loans earning an average rate of return
of 6 percent. The FI also has one-year single-payment Canadian dollar loans of C$110
million earning 8 percent. The FI’s funding source is $300 million in US$ one-year
CDs, on which they are paying 4 percent. Initially the exchange rate is C$1.10 per
US$1.The one-year forward rate is C$1.14 per US$1. What is the bank’s dollar percent
spread if they hedge fully using forwards?
What is the difference between General Obligation and Revenue bonds?
Is it reasonable to expect real rates of interest to be identical across countries? Explain.
What does this imply about parity?