A 10-year annual payment corporate bond has a market price of $1,050. It pays annual
interest of $100 and its required rate of return is 9 percent. By how much is the bond
mispriced?
PV = 100 x PVIFA [9%, 10 yrs.] + 1,000 x PVIF (9%, 10 yrs.) = $1,064.18
A.$0.00
B.Overpriced by $14.18
C.Underpriced by $14.18
D.Overpriced by $9.32
E.Underpriced by $9.32
Liquidity risk at a financial intermediary (FI) is the risk
A.that promised cash flows from loans and securities held by FIs may not be paid in
full.
B.incurred by an FI when the maturities of its assets and liabilities do not match.
C.that a sudden surge in liability withdrawals may require an FI to liquidate assets
quickly at fire sale prices.
D.incurred by an FI when its investments in technology do not result in cost savings or
revenue growth.
E.risk that an FI may not have enough capital to offset a sudden decline in the value of
its assets.
If the average net interest margin for this type of bank is 4.65 percent, then, ceteris
paribus, this particular bank is performing
A.the same as average because this bank has a NIM of 4.65 percent.
B.better than average because this bank has a NIM of 6.55 percent.
C.poorer than average because this bank has a NIM of 4.08 percent.
D.better than average because this bank has a NIM of 5.23 percent.
E.One can’t determine with the information given.
Interest income from Treasury securities is ________________, and interest income
from municipal bonds is always ________________.
A.exempt from federal taxes; exempt from all taxes
B.taxable at the state level only; exempt from state taxes only
C.taxable at federal level only; exempt from federal taxes
D.taxable at the state level; taxed at the federal level
E.totally tax exempt; exempt from state taxes
The Securities Exchange Commission (SEC) does not
A.decide whether a public issue is fairly priced.
B.decide whether a firm making a public issue has provided enough information for
investors to decide whether the issue is fairly priced.
C.require exchanges to monitor trading to prevent insider trading.
D.attempt to reduce excessive price fluctuations.
E.monitor the major securities exchanges.
The Fed offers three types of discount window loans. ______________ credit is offered
to small institutions with demonstrable patterns of financing needs, _____________
credit is offered for short-term temporary funds outflows, and _____________ credit
may be offered at a higher rate to troubled institutions with more severe liquidity
problems.
A.Seasonal; extended; adjustment
B.Extended; adjustment; seasonal
C.Adjustment; extended; seasonal
D.Seasonal; primary; secondary
E.Adjustment; seasonal; extended
Mutual fund investors expect to profit from their investments through the receipt of
mutual fund dividends and
a.interest income.
b.rent income.
c.price appreciation resulting in a capital gain when the shares are sold back to the fund.
d.All of these.
Having your employer withhold more in estimated taxes than the likely tax liability
ultimately due the government is a recommended technique for saving money.
a.True
b.False
Blue Ridge Bank has a PM of 12 percent, an interest income to total assets ratio of 6.00
percent, and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9
in assets per dollar in equity capital. Blue Ridge’s ROE is
A.7.50 percent.
B.9.00 percent.
C.8.10 percent.
D.6.48 percent.
E.5.75 percent.