1) angel venture capitalists have invested more in startup firms than institutional
venture capital firms.
2) in 1971, the bretton woods agreement established that, for the first time, currency
values would be fixed against one another within narrow bands.
3) the lack of perfect correlation between spot and futures prices implies that most
hedges will have some basis risk.
4) in cumulative voting, a stockholder who owns 51% of the shares can be assured of
the ability to elect the entire board of directors.
5) buying a cap is similar to buying a call option on bond prices.
6) bonds rated below baa by moody’s or bbb by s&p are junk bonds.
7) an advantage of securitization and loan sales over interest rate swaps as a
risk-management tool is that securitization, by removing loans from the balance sheet,
reduces the regulatory tax imposed by existing regulations.
8) the financial services modernization act first allowed section 20 affiliates.
9) the traditional liquidity premium theory states that long-term interest rates are greater
than the average of expected future interest rates.
10) with a zero interest rate both the present value and the future value of an n payment
annuity would equal n x payment.
11) an in the money american call option increases in value as expiration approaches,
but an out of the money american call option decreases in value as expiration
approaches.
12) the quantity of notes and coin in the economy is called inside money but the bulk of
the money supply is outside money.
13) the provision for loan loss account is actual loan losses less loan recoveries in a
given time period.
14) 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.
15) answer the following questions concerning the given partial stock quote:
a) what was the dividend yield?
b) what was the most recent four quarters of earnings per share?
c) valued at the closing price, what was the total dollar volume of shares traded?
d) what was the stock price at the beginning of the year?
16) a decrease in reserve requirements could lead to an
a.increase in bank lending
b.increase in the money supply
c.increase in the discount rate
d.both a and b
e.both a and c
17) for the purposes for which they are used, money market securities should have
which of the following characteristics?
i. low trading costs
ii. little price risk
iii. high rate of return
iv. life greater than one year
a.i and iii
b.ii and iv
c.iii and iv
d.i and ii
e.i, ii, and iii
18) in terms of dollar costs, the worst u.s. catastrophe since 2000 was caused by
a.the terrorist attacks on the world trade center and the pentagon
b.hurricane katrina
c.the california fires of 2007
d.the florida hurricanes of 2004
e.hurricane rita of 2005
19) aggregate finance company profitability was poor in the late 2000s primarily due to
which segment of the finance company industry?
a.business factoring
b.equipment loans
c.equipment leasing
d.securitization of auto loans
e.subprime lending
20) money markets trade securities that
i. mature in one year or less
ii. have little chance of loss of principal
iii. must be guaranteed by the federal government
a.i only
b.ii only
c.i and ii only
d.i and iii only
e.i, ii, and iii
21) what factors are encouraging financial institutions to offer overlapping financial
services such as banking, investment banking, brokerage, etc.?
i. regulatory changes allowing institutions to offer more services
ii. technological improvements reducing the cost of providing financial services
iii. increasing competition from full service global financial institutions
iv. reduction in the need to manage risk at financial institutions
a.i only
b.ii and iii only
c.i, ii, and iii only
d.i, ii, and iv only
e.i, ii, iii, and iv
22) which of the following information is not usually found in a wall street journal
stock quote?
a.dividend yield
b.price-earnings ratio
c.closing price of the stock
d.stock rating
e.ticker symbol
23) if interest rates increase, the value of a fixed income contract decreases and vice
versa.
24) computerized markets that automatically match orders between buyers and sellers
and are used primarily by institutions traders are called
a.otc bulletin boards
b.spidrs
c.index markets
d.ecns
e.specialists
25) if a $10,000 par t-bill has a 3.75% discount quote and a 90-day maturity, what is the
price of the t-bill to the nearest dollar?
a.$9,625
b.$9,906
c.$9,908
d.$9,627
e.none of the above
26) you buy euros in new york from deutsche bank and simultaneously sell them in
london to barclays for a gain. this is an example of
a.position trading
b.program trading
c.risk arbitrage
d.pure arbitrage
e.hedging
27) a homebuyer bought a house for $245,000. the buyer paid 20% down but decided to
finance closing costs of 3% of the mortgage amount. if the borrower took out a 30-year
fixed-rate mortgage at a 5% annual interest rate, how much interest will the borrower
pay over the life of the mortgage?
a.$224,655
b.$180,622
c.$228,477
d.$188,265
e.$248,575
28) a ___________ placed against mortgaged property ensures that the property cannot
be sold (except by the lender) until the mortgage is paid off.
a.collateral
b.lien
c.writ of habeas corpus
d.down payment
e.writ of certiorari
29) rank the following types of mortgages by amount outstanding from largest to
smallest.
i. home mortgages
ii. multifamily mortgages
iii. farm mortgages
iv. commercial mortgages
a.i, ii, iii, iv
b.i, ii, iv, iii
c.ii, i, iv, iii
d.iv, ii, iii, i
e.i, iv, ii, iii
30) how does reliance on purchased liquidity rather than core deposits affect a bank?
i. increases the risk of a liquidity crisis
ii. allows the bank to adjust to deposit drains without affecting bank size
iii. increases overall interest sensitivity of the bank’s profits to interest rates
a.i only
b.ii only
c.i and ii only
d.ii and iii only
e.i, ii, and iii
31) an entrepreneur looking for financing to get her small, personally-owned business
up and running should probably consider
a.an ipo
b.a seasoned stock offering
c.a public debt offering
d.a venture capitalist
e.a syndicated loan
32) u.s. depository institutions may be subject to as many as ______________ separate
regulators.
a.4
b.5
c.6
d.7
e.8
33) at p&c insurers, if the combined ratio is less than 100%, the premiums charged
were sufficient to cover
a.losses only
b.expenses only
c.both losses and expenses
d.losses, expenses, and investment returns on premiums
34) why were the firrea of 1989 and the fdicia of 1991 passed? what were their major
provisions? how did these laws differ from earlier acts of the 1980s?
35) figure 24-2
on january 1 a bank had originated 500 30-year fixed rate mortgages with a 6.25%
coupon at par. the average mortgage size is $255,000. the bank charges a 1%
origination fee for each mortgage but processing costs amount to 0.4%. after
securitization the bank will retain 35 basis points in fee income for servicing the
mortgage payments. the cost of this processing is 12 basis points.
what is the total amount of net fee revenue generated from the mortgages over the year?
36) why does the size of the u.s. current account deficit put pressure on the value of the
dollar to decline? how does the size of the capital account affect that pressure? explain.
37) what are the advantages and disadvantages of forwards versus futures contracts?
38) a bank wishes to hedge its $30 million face value bond portfolio (currently priced at
99% of par). the bond portfolio has a duration of 9.75 years. they will hedge with
t-bond futures ($100,000 face) priced at 98% of par. the duration of the t-bonds to be
delivered is 9 years. how many contracts are needed to hedge? should the contracts be
bought or sold? ignore basis risk.
39) you bought your house 5 years ago and you believe you will be in the house only
about 5 more years before it gets too small for your family. your original home value
when you bought it was $250,000, you paid 20% down and you financed closing costs
equal to 3% of the mortgage amount. the mortgage was a 30 year fixed-rate mortgage
with a 6.5% annual interest rate. rates on 30-year mortgages are now at 5% if you pay 2
points. your refinancing costs will be 1.5% of the new mortgage amount (excluding
points). you won’t finance the points and closing costs this time. a new down payment is
not required. should you refinance? ignore all taxes and show your work.