1) a higher level of which of the following variables would make a put option on
common stock more valuable, ceteris paribus?
i. stock price
ii. stock price volatility
iii. interest rates
iv. exercise price
a.ii only
b.ii and iv only
c.i, ii, and iii only
d.i, iii, and iv only
e.i, ii, iii, and iv
2) the qtl test requires that thrifts
a.limit the amount of mortgage-related assets on the balance sheet to improve
diversification
b.invest in a minimum percentage of government-backed securities to protect their
mortgage loans
c.lend no more than 80% of the value of a home to a borrower to ensure mortgage
safety
d.keep 35% of their assets in safe liquid investments to ensure adequate deposit
liquidity
e.invest at least 65% of their assets in mortgages or mortgage-related assets
3) the electronic-based market for less actively traded u.s. securities is the
a.adr market
b.otc bulletin board
c.pink sheet stocks
d.nyse low volume market
e.ecn market
4) which of the following are likely to lead to an appreciation of the u.s. dollar (ceteris
paribus)?
i. higher real u.s. interest rates
ii. lower u.s. inflation
iii. higher nominal u.s. interest rates
a.ii and iii only
b.i and iii only
c.i and ii only
d.ii only
e.i, ii, and iii
5) figure 1-1
ibm creates and sells additional stock to the investment banker, morgan stanley. morgan
stanley then resells the issue to the u.s. public.
morgan stanley is acting as a(n)
a.asset transformer
b.asset broker
c.government regulator
d.foreign service representative
6) which of the following statements about gnma is/are true?
i. gnma provides timing insurance.
ii. gnma creates pools of mortgages and issues securities.
iii. gnma insures only fha, va, and fmha loans.
iv. gnma requires that all mortgages in the pool have the same interest rate.
a.i, ii, iii, and iv are true
b.i, iii, and iv only
c.i, ii, and iii only
d.ii, iii, and iv only
e.iii and iv only
7) non-performing loans are loans that are past due ___________ that are not accruing
interest.
a.30 days
b.60 days
c.90 days
d.120 days
e.180 days
8) with a fixed-rate mortgage, the ____________ bears the interest rate risk and with an
arm the ______________ bears the interest rate risk.
a.borrower; lender
b.borrower; borrower
c.lender; lender
d.lender; borrower
e.federal government; pool organizer
9) figure 20-2
balance sheet big valley enterprises
interest is big valley’s only fixed cash charge.
big valley’s market value of equity to book value of debt ratio = 1.5
big valley’s use of debt to finance assets indicates that big valley has ____________ the
typical firm in the industry.
a.more long-term solvency risk than
b.the same long-term solvency risk as
c.less interest expense than
d.less long-term solvency risk as
e.a lower market value of equity to book value of equity ratio than
10) an fi with da > kdl could do which of the following to reduce the duration gap?
a.engage in a swap and pay a variable rate and receive a fixed rate of interest
b.sell bond futures contracts
c.buy bonds forward
d.buy bond call options
e.none of the above
11) you go to the wall street journal and notice that yields on almost all corporate and
treasury bonds have decreased. the yield decreases may be explained by which one of
the following:
a.a decrease in u.s. inflationary expectations
b.newly expected decline in the value of the dollar
c.an increase in current and expected future returns of real corporate investments
d.decreased japanese purchases of u.s. treasury bills/bonds
e.increases in the u.s. government budget deficit
12) foreign exchange trading in 2010 averaged about _____________ per day.
a.$101 million
b.$4.0 trillion
c.$101 billion
d.$1.88 trillion
e.$101 trillion
13) darby minerals wants to hire an investment banker to sell 2 million shares of stock
to the public. darby is considering using either a firm commitment or a best efforts
offering.
a) if darby goes with a firm commitment, the offer price will be $15.00 per share and
the spread will be 25 cents a share and all 2 million shares will be sold. the actual sale
price to the public is $14.55.
b) suppose that darby uses a best efforts offering. the actual sale price to the public is
again $14.55 and the investment banker charges 4 cents per share sold as commission.
assume that in the best efforts offer only 1.85 million shares can be sold.
what are the proceeds to darby from the sale of stock in the firm commitment and the
best efforts and what is the investment banker’s gain or loss in each case? ignore any
other costs and expenses.
14) weaknesses of the repricing model include the fact that
i. it ignores changes in present values caused by changes in interest rates.
ii. it ignores different cash flow sensitivities within a maturity bucket.
iii. it fails to account for runoffs and prepayments.
a.i only
b.i and ii only
c.i and iii only
d.ii and iii only
e.i, ii, and iii
15) cash in the process of collection is
a.a deposit at another financial institution
b.a fed funds transaction
c.checks the bank owes other institutions that have not yet been paid
d.checks that the bank is owed but has not yet collected
e.equity capital
16) figure 20-2
balance sheet big valley enterprises
interest is big valley’s only fixed cash charge.
big valley’s market value of equity to book value of debt ratio = 1.5
big valley is collecting their receivables about __________________ than the typical
firm.
a.22% more quickly
b.12% more quickly
c.17% more slowly
d.12% more slowly
17) in a ____________ offering the firm preregisters with 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
18) a bondholder owns 15-year government bonds with a $5 million face value and a
6% coupon that is paid annually. the bonds are currently priced at $550,018.73 with a
yield of 5.034%. the bonds have a duration of 10.53 years. if interest rates are projected
to increase by 50 basis points, how much will the bondholder gain or lose?
a.$27,571
b.$25,063
c.-$27,571
d.-$25,063
e.$5,313
19) sales finance companies
a.specialize in making loans to customers of a specific retailer or manufacturer
b.specialize in making installments and other loans to whatever consumers are
interested
c.specialize in providing loans to businesses
d.specialize in international factoring and forfaiting
e.none of the above