The market in which firms sell new securities to raise cash is called the secondary
market.
Federal Reserve Board members are appointed by the U.S. president and confirmed by
the Senate for a nonrenewable 14-year term.
A seasoned equity offering occurs when an issuer that already has equity publicly
trading issues new shares to the public.
If the stock markets are semi-strong efficient, stock prices reflect all historic and current
public information about a firm but prices do not reflect inside information.
Loans are the major item on a bank’s balance sheet, and they generate the largest
amount of revenue.
C&I loans are loans to businesses used to finance capital needs, equipment purchases,
and plant expansions.
Commercial property purchased to rent to other is designed for residential living such
as houses, duplexes, apartments, mobile homes, and condominiums.
True
False
A credit forward is a forward agreement that hedges against an increase in default risk
on a loan after the loan has been created by a lender.
According to the unbiased expectations theory,
A.the term structure will most often be upward sloping.
B.liquidity premiums are negative and time varying.
C.the long-term spot rate is an average of the current and expected future short-term
interest rates.
D.markets are segmented and buyers stay in their own segment.
E.forward rates are less than the expected future spot rates.
A time draft payable to a seller of goods, with payment guaranteed by a bank is a
A.commercial paper security.
B.T-bill.
C.repurchase agreement.
D.negotiable CD.
E.banker’s acceptance.
CD laddering is a technique that smoothes out the fluctuations in interest rates and
lowers inflation rate risk.
a.True
b.False
Mike has a chronic illness. He had an adjusted gross income of $42,000. During the
year he incurred unreimbursed expenses of $2,500 on prescription drugs, $3,500 on
doctor and dentist bills, $2,400 on health insurance premiums, and $250 on medical
related transportation costs. Assuming he had enough total itemized deductions to
itemize, how much will he be allowed to deduct for these unreimbursed medical
expenses?
a.$0
b.$2,050
c.$4,450
d.$8,650
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.increase in bank lending and an increase in the money supply.
E.increase in bank lending and an increase in the discount rate.
A life insurer owes $550,000 in eight years. To fund this outflow, the insurer wishes to
buy STRIPS that mature in eight years. The STRIPS have a $5,000 face value per
STRIP and pay a 6 percent APR with semiannual compounding. How much must the
insurer spend now to fully fund the outflow (to the nearest dollar)?
A.$110,000
B.$342,742
C.$355,224
D.$362,355
E.$370,890
Because the focus is on building a relationship you can wait until after €popping the
question€ to discuss financial issues.
a.True
b.False
A charge that often decreases 1 percent each year the investor owns shares in the fund is
called a
a.redemption fee.
b.12b-1 fee.
c.management fee.
d.back-end load.
A switching privileges on mutual funds allows shareholders to exchange shares of one
mutual fund for shares of
a.common stock.
b.any mutual fund sold in the United States.
c.any mutual fund in the same family of funds.
d.bonds.
Explain how the deposit multiplier works.
FNMA has direct holdings of 30-year fixed-rate mortgages financed by three- to
five-year agency securities sold to the public.
What kind of interest rate swap could FNMA use to limit their interest rate risk?
Explain.
The one-year spot rate is currently 4 percent; the one-year spot rate one year from now
will be 3 percent; and the one-year spot rate two years from now will be 6 percent.
Under the unbiased expectations theory, what must today’s three-year spot rate be?
Suppose the three-year spot rate is actually 3.75 percent, how could you take advantage
of this? Explain.
You bought your house fiveyears ago and you believe you will be in the house only
about five more years before it gets too small for your family. Your original home value
when you bought it was $250,000, you paid 20 percent down, and you financed closing
costs equal to 3 percent of the mortgage amount. The mortgage was a 30-year fixed-rate
mortgage with a 6.5 percent annual interest rate. Rates on 30-year mortgages are now at
5 percent if you pay 2 points. Your refinancing costs will be 1.5 percent 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.
According to current projections, Social Security and other entitlement programs will
soon be severely underfunded. If the government decides to cut Social Security benefits
to future retirees and raise Social Security taxes on all workers, what will probably
happen to the supply of funds available to the capital markets? What will be the effect
on interest rates?
An FI’s position in FX markets generally reflects four trading activities. What are they,
and which one(s) cause the FI to bear FX risk?
When would preferred stock be a better investment choice than common stock or
bonds?
Is the realized rate of return related to the expected return? the required return? Explain.
As a corporate treasurer who is unsure how soon funds will be needed, which type of
money market investment might you prefer? Explain the trade-offs. Would your answer
differ if you had a definite time period during which you would not need the money?
Explain.
An increase in Treasury securities held by the Fed leads to a decrease in the money
supply.