Fin 469 Test 1 | Course Paper

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1) a bank charges a commercial borrower a 6.55% interest rate on a 1-year loan. the

bank also charges a 0.5% origination fee and requires compensating balances of 7% in

the form of demand deposits. reserve requirements are 10%. what is the promised gross

rate of return on the loan?

a.8.45%

b.7.89%

c.9.10%

d.7.52%

e.6.95%

2) figure 2-1

yield curve for zero coupon bonds rated aa

assume that there are no liquidity premiums.

you just bought a fifteen-year maturity xerox corporate bond rated aa with a 0%

coupon. you expect to sell the bond in eight years. find the expected interest rate at the

time of sale (watch out for rounding error).

a.11.00%

b.8.85%

c.12.49%

d.12.80%

e.13.92%

3) the interest rate used to find the present value of a financial security is the

a.expected rate of return

b.required rate of return

c.realized rate of return

d.realized yield to maturity

e.current yield

4) a corporate loan applicant has cash of $40, receivables of $50, and inventory of $20.

the applicant also has current debts of $65. if the bank’s policy requires a current ratio

of 1.75 or better and an acid test ratio of 1.25 or better would the applicant receive the

loan?

a.yes, because the applicant’s current ratio and acid test ratios are acceptable

b.no, because the applicant’s current ratio and acid test ratios are both unacceptable

c.no, because although the applicant’s current ratio is acceptable, its acid test ratio is not

d.no, because although the applicant’s acid test ratio is acceptable, its current ratio is not

5) which one of the following securities firms’ activities is normally the most risky?

a.best efforts offering

b.private placement

c.firm commitment offering

d.pure arbitrage

e.program trading

6) which one of the following types of mortgages is likely to become more popular as

the average age of the u.s. population increases?

a.gem

b.gpm

c.sam

d.pla

e.ram

7) figure 12-1

if the typical bank of this type has an overhead efficiency ratio of 0.65, then this

particular bank ___________________ than the typical bank, ceteris paribus.

a.is doing a poorer job generating profitable off-balance-sheet activities

b.is doing a better job time managing noninterest income and expenses

c.is paying higher taxes

d.has fewer loan losses

e.none of the above

8) the levels of foreign currency assets and liabilities at banks have ___________ in

recent years and the level of foreign currency trading has ____________.

a.increased; increased

b.decreased; decreased

c.increased; decreased

d.decreased; increased

e.decreased; stayed the same

9) an employee contributes 6% of her salary to her 401(k) plan and her employer

contributes another $1,900. the employee earns $75,000 and is in a 28% tax bracket. if

the employee earns 8.50% on all funds invested each year and her salary does not

change, how much will she have in her account in 20 years?

a.$195,369

b.$213,133

c.$244,667

d.$289,055

e.$309,613

10) convertible bonds are

i. options attached to bonds that give the bondholder the right to purchase stock at a

preset price without giving up the bond

ii. bonds in which the issue matures (converts) a little each year

iii. bonds collateralized with certain types of automobiles

iv. bonds that may be converted to a certain number of shares of stock determined by

the conversion ratio

a.i only

b.i and ii only

c.i, ii, and iii

d.iv only

e.i and iii only

11) bank a has a higher roa than bank b. both banks have similar interest income to

asset ratios and noninterest income to asset ratios. we know that

i. bank a has a higher profit margin than bank b.

ii. bank a has a higher au ratio than bank b.

iii. bank a must have a higher pll/oi ratio.

a.i only

b.ii only

c.i and ii only

d.iii only

e.i, ii, and iii

12) if your firm enters into an overnight reverse repurchase agreement your firm is

a.borrowing fed funds temporarily

b.selling a security now while agreeing to buy it back tomorrow

c.giving an unsecured loan to the counterparty

d.procuring a banker’s acceptance

e.none of the above

13) the typical duration of a class b cmo is

a.1.5 to 3 years

b.3 to 5 years

c.5 to 7 years

d.7 to 10 years

e.18 to 20 years

14) refer to the listed stock option price quote from february and assume it is now

january:

figure 10-1

if you buy the march put and don’t exercise before contract maturity, you will make a

profit if the stock price at maturity _______________________ from today’s price.

a.increases by more than 9.65%

b.increases by more than 4.57%

c.decreases by more than 3.94%

d.decreases by more than 11.99%

e.does not decrease by more than 5.64%