Discount points are paid to reduce the down payment required.
Commercial paper, Treasury bills, and banker’s acceptance rates are all quoted as
discount yields.
Business loans have dropped in importance since 1987 as measured by the proportion
of these loans on the bank balance sheet.
You would expect the price quote for a put option to be at least $10 if the put had an
exercise price of $40 and the underlying stock was selling for $50.
A U.S. bank has made £12 million worth of loans and £10 million worth of deposits in
Britain. The bank would benefit from a drop in the value of the pound against the dollar.
MMDAs are a type of savings account that has some limited checking features. These
accounts were designed to help banks compete with MMMFs.
For any positive interest rate the present value of a given annuity will be less than the
sum of the cash flows, and the future value of the same annuity will be greater than the
sum of the cash flows.
A zero coupon bond has a duration equal to its maturity and a convexity equal to zero.
Federal Reserve interest rate decisions can be vetoed by the U.S. president or the
Congress.
The allowance for loan and lease losses is bank management’s estimate of the amount
of gross loans and leases that will not be repaid to the bank.
If the dollar is initially worth 120 yen and then the exchange rate changes so that the
dollar is now worth 115 yen, the value of the yen has depreciated.
Private mortgage insurance (and hence, that part of the homeowner’s monthly payment)
is automatically removed from a mortgage when the loan-to-value ratio on the
mortgage falls below 80 percent.
Justin has auto insurance coverage of 25/75/15 for his new Nissan. Being a nice guy,
Justin lets his friend use the car. The friend was involved in a major accident and was at
fault. Following are the damages:
Bodily injury
Other driver injury$15,000
First passenger in the other car$30,000
Second passenger in other car$2,000
Property damage
Other car$9,000
Telephone pole$2,000
How much will Justin’s auto insurance pay for the above damages?
a.$0
b.$53,000
c.$58,000
d.$61,000
A shelf registration allows firms the opportunity to avoid the normal ______________
day waiting period by allowing preregistration of securities for up to ______________
years.
A.20-; two
B.10-; one
C.15-; three
D.20-; one
E.30-; two
Refer to Figure 3-1. Calculate Maria and John’s surplus (loss) for the year.
a.$2,503
b.$1,200
c.($1,200)
d.($11,800)
Core deposits are deposits that are
A.at the bank solely for the interest rate earned.
B.very stable funds sources.
C.typically for larger denominations than hot money sources.
D.very frequently turned over.
A donation of old toys and clothes to the Salvation Army valued at $500 will save a
single taxpayer in the 33 percent marginal tax bracket
a.$500 if he or she has other itemized deductions of at least $6,200.
b.$500 if he or she has other itemized deductions of at least $12,400.
c.$165 if he or she has other itemized deductions of at least $6.200.
d.$165 if he or she has other itemized deductions of at least $12,400.
You find the following current quote for the March T-bond contract: $100,000; Pts 32nd,
of 100 percent.
You went long in the contract at the open. Which of the following is/are true?
I. At the end of the day, your margin account would be increased.
II. 55,210 contracts were traded that day.
III. You agreed to deliver $100,000 face value T-bonds in March in exchange for
$89,120.
IV. You agreed to purchase $100,000 face value T-bonds in March in exchange for
$89,375.
A.I, II, and III only
B.I, II, and IV only
C.I and III only
D.I and IV only
E.IV only
In a ____________ offering the firm preregisters with the SEC any securities it wishes
to sell over the next two years.
A.rights
B.full underwritten
C.general cash
D.shelf
E.best efforts
An ILC is a type of
A.finance company.
B.thrift institution.
C.credit card bank.
D.nonbank bank.
E.foreign-owned loan corporation.
You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What
was your EAR?
(9,675/9,575)(365/60) – 1 = .06524 = 6.52%
A.4.44 percent
B.6.29 percent
C.6.35 percent
D.6.52 percent
E.6.67 percent
Discuss the major macro benefits of financial intermediaries. What role does the
government have in the credit allocation process?
Who are the major suppliers and demanders of funds in the United States and what is
their typical position?
An investor is holding a $1,000 par, 10-year 9 percent coupon convertible bond with a 9
percent required bond yield. The bond is convertible into 40 shares of stock. Each share
is worth $30. The bond has a current market value of $1,200. If interest rates don’t
change, what is the maximum gain and loss on the bond?
What is the bank’s NIM? Is the bank performing better or worse than average? In what
area is the bank performing better or worse than average? How could the bank improve
if necessary?
Why are loans such a high percentage of total assets at the typical bank? What four
broad classes of loans do banks engage in?
At the start of the quarter a bank has $55 million (gross) in its loan portfolio, and has $1
million in its allowance for loan loss account. During the quarter, loan audits indicate
that an additional $300,000 of loans will not be paid as promised. These loans have not
yet been written off as uncollectible, however. What are the starting and ending gross
and net loan amounts and the provision for loan loss account, and what is the effect on
the bank’s quarterly earnings?
A municipal bondholder buys a 5 percent coupon annual payment muni bond at a price
of $4,900. The bond has a $5,000 face value. In one year she sells the bond for $4,975.
The appropriate capital gains tax rate is 15 percent and her ordinary income tax rate is
28 percent. What is her after-tax rate of return?
As a small (minority) stockholder would you prefer to have cumulative voting or
straight voting shares? As a majority shareholder?
Why do mortgage lenders prefer ARMs while many borrowers prefer fixed-rate
mortgages, ceteris paribus.