1) hedge funds charge expense fees and performance fees. the average performance fee
on hedge funds is ____________.
a.5%
b.10%
c.15%
d.20%
e.25%
2) in 2010, the top five underwriters engaged in about _____________ of total u.s.
underwriting volume.
a.15%
b.22%
c.34%
d.44%
e.56%
3) your firm enters into a swap agreement with a notional principle of $40 million
where the firm pays a fixed-rate of interest of 5.50% and receives a variable-rate of
interest equal to libor plus 150 basis points. if libor is currently 3.75%, the net amount
your firm will receive (+) or pay (-) on the next transaction date is
a.-$2,200,000
b.$2,625,000
c.$125,000
d.-$100,000
e.-$875,000
4) a bank has total assets of $620 million and $68.2 million in equity. the managers of
the bank realize that $18.6 million of its $372 million loan portfolio will not be repaid.
after the bank charges off these unexpected bad loans the bank’s equity to asset ratio
will be __________________.
a.11.00%
b.10.64%
c.9.77%
d.8.25%
e.8.00%
5) which of the following is the major monetary policy making body of the u.s. federal
reserve system?
a.fomc
b.occ
c.frb bank presidents
d.u.s. congress
e.group of eight
6) figure 7-1
a homeowner can obtain a $250,000, 30-year fixed-rate mortgage at a rate of 6.0% with
zero points or at a rate of 5.5% with 2.25 points.
how long must the owner stay in the house to make it worthwhile to pay the points if
the payment saving is invested monthly?
a.7.15 years
b.3.33 years
c.6.04 years
d.5.90 years
e.more than 30 years
7) bank a has a loan to deposit ratio of 110%, core deposits equal 55% of total assets,
and borrowed funds are 25% of assets. bank b has a loan to deposit ratio of 80%. core
deposits are 65% of assets and borrowed funds are 5% of assets. which bank has more
liquidity risk? ceteris paribus, which bank will probably be more profitable when
interest rates are low?
a.bank a; bank a
b.bank a; bank b
c.bank b; bank a
d.bank b; bank b
e.you can’t tell
8) a regional bank negotiates the purchase of a one-year interest rate cap with a cap rate
of 5.45% with a large bank. the option has a notional principle of $2 million and costs
$3,400. in one year, interest rates are 6.33%. the regional bank’s net profit, ignoring
commissions and taxes, was
a.$105,600
b.$18,400
c.$17,600
d.$14,200
e.$11,500
9) figure 22-2
a bank has da = 2.4 years and dl= 0.9 years. the bank has total equity of $82 million and
total assets of $850 million. interest rates are at 6%.
to get de to equal zero to protect the equity value in the event of an interest rate change,
the bank could
a.reduce da to 1.21 years
b.increase dl to 2.44 years
c.increase dl to 3.10 years
d.reduce da to zero
e.increase dl to 2.66 years
10) which of the following trends in the number and industry assets of savings
institutions is/are correct?
i. the number of savings institutions has fallen over time.
ii. the number of savings institutions has increased over time.
iii. total industry assets fell during the recession of the late 2000s.
iv. total industry assets are falling over time.
v. total industry assets are stable but the number of savings institutions has fallen.
a.ii and iii only
b.i and iii only
c.i and iv only
d.ii and iv only
e.v only
11) an investor wants to be able to buy 4% more goods and services in the future in
order to induce her to invest today. during the investment period prices are expected to
rise by 2%. which statement(s) below is/are true?
i. 4% is the desired real rate of interest
ii. 6% is the approximate nominal rate of interest required
iii. 2% is the expected inflation rate over the period
a.i only
b.ii only
c.iii only
d.i and ii only
e.i, ii, and iii are true
12) purchased funds include all but which one of the following?
a.brokered deposits
b.wholesale cds
c.fed funds purchased
d.repurchase agreements
e.demand deposits
13) _____________________ is the process of taking possession of the mortgaged
property to satisfy the debt in the event of failure to repay the mortgage and foregoing
claim to any deficiency.
a.perfecting collateral
b.foreclosure
c.power of sale
d.conditions precedent
e.lien enforcement
14) a contingent promise by a bank to pay a bill when it comes due if the bill’s
originator fails to pay is an example of a
a.swap agreement
b.standby letters of credit
c.forward contract
d.loan commitment
e.commitment to buy foreign exchange
15) home equity loans are popular with finance companies. which one of the following
statements about home equity loans is not correct?
a.these loans allow customers to borrow on a line of credit secured with a second
mortgage
b.interest payments on home equity loans are not tax deductible
c.bad debt expense on home equity loans are lower than on many other types of finance
company loans
d.the average outstanding balance on home equity loans was $85,472 in 2007
e.if the borrower defaults on the home equity loan, the finance company can seize the
house
16) the fed changes reserve requirements from 10% to 14%, thereby eliminating $750
million in excess reserves. the total change in deposits (with no drains) would be
(rounded)
a.$7.917 billion
b.$6.630 billion
c.$5.357 billion
d.$4.934 billion
e.none of the above
17) with a 6-month maturity bucket, a 9-month fixed rate loan would be considered a
________________ asset and a 30-year mortgage with a rate adjustment in 3 months
would be classified as a _______________ asset.
a.rate-sensitive; fixed-rate
b.rate-sensitive; rate-sensitive
c.fixed-rate; fixed-rate
d.fixed-rate; rate-sensitive
e.fixed-rate; non-earning
18) the diagram below is a diagram of the
a.secondary markets
b.primary markets
c.money markets
d.derivatives markets
e.commodities markets
19) the term structure of interest rates is upward sloping for all bond types. a certain aaa
rated non-callable 10-year corporate bond has been issued at a 6.15% promised yield.
which one of the following bonds probably has a higher promised yield?
a.a similar quality municipal bond
b.a non-callable aaa rated corporate bond with a 5-year maturity
c.a callable aaa rated corporate bond with a 15-year maturity
d.a non-callable aaa rated convertible corporate bond with a 10-year maturity
e.all of the above would have a higher promised yield