Archives: Quiz

1) a dealer is quoting a $10,000 face 180-day t-bill quoted at 2.75 bid, 2.65 ask. you could buy this bill at ______________ or sell it at _______________. a.$9,869.23; $9864.36 b.$9864.36; $9,869.23 c.$9,867.50; $9862.50 d.$9,862.50; $9,867.50 e.none of the above […]

1) a bank charges a commercial borrower a 6.55% interest rate on a 1-year loan. the bank also charges a 0.5% origination fee and requires compensating balances of 7% in the form of demand deposits. reserve requirements are 10%. what […]

1) oceanside bank converts a dollar of equity into 10 cents of net income and has $9.50 in assets per dollar of equity capital. oceanside also has a profit margin of 15%. what is oceanside’s au ratio? a.1.05% b.3.55% c.5.56% […]

1) an investor is considering purchasing a treasury bond with a 16-year maturity, a 6% coupon and a 7% required rate of return. the bond pays interest semiannually. a) what is the bond’s modified duration? b) if annual promised yields […]

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 […]

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% […]

1) new futures contracts must be approved by a.the cftc b.the sec c.the warren commission d.the nyse e.the federal reserve 2) the base loan rate accounts for i. the firm’s cost of funds. ii. the firm’s required return on equity. […]

1) an investment banker agrees to a best efforts offering of 2.5 million shares of crew stock. the offer price is set at $35 per share. if the stock is actually sold to the public at $34.50 and the banker […]

1) a borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2% annual rate. after five years, he wishes to pay off the remaining balance. interest rates have by then fallen to 7%. how much must he pay […]

1) you have $16,000 to invest in a mutual fund with a nav = $45. you choose a fund with a 4% front load, a 1% management fee, and a 0.25% 12b-1 fee. assume that the management and 12b-1 fees […]

1) the risk that a security cannot be sold at a predictable price with low transaction costs at short notice is called liquidity risk. 2) primary markets are markets where users of funds raise cash by selling securities to funds’ […]

1) as long as overall cash flow growth is positive, a bank loan officer would not be concerned if cash flow from operations was projected to be negative over the term of the loan. 2) in a best efforts offering, […]

1) if you think that interest rates are likely to rise substantially over the next several years, you might sell a t-bond futures contract or buy an interest rate cap to take advantage of your expectations. 2) a man has […]

1) if da > kdl, then falling interest rates will cause the market value of equity to rise. 2) business loans have dropped in importance since 1987 as measured by the proportion of these loans on the bank balance sheet. […]

1) most states maintain a permanent reserve fund to resolve insurance company failures. 2) a 12b-1 fee is an implicit load charge. Answer: true 3) a seasoned equity offering occurs when an issuer that already has equity publicly trading issues […]

1) issuance of short-term debt would result in an increase in cash flow from operations on the statement of cash flows. 2) a well-managed bank tries to keep the ratio of nonperforming loans to total loans at about 8% to […]

1) cash management accounts offered by a securities firm allow investors to write checks on funds invested in money market securities. 2) convertible bonds will normally have lower promised yields than straight bonds of similar terms and quality. Answer: true […]

1) the cash surrender value of a life insurance policy is the present value of expected future payouts on the policy. 2) the greater the discount required to sell assets quickly, the higher the value of the bank’s liquidity index. […]

1) the major asset of the federal reserve is currency outside banks and the major liability is u.s. treasury securities. 2) simple interest calculations assume that interest earned is never reinvested. Answer: true 3) diversified full-line investment banks act as […]

1) a defined benefit pension plan expects to pay out $25 million per year over the next 10 years to pensioners. the fund currently has $155 million in pension assets that are earning 10% per year. this plan is underfunded. […]

1) since 1980 the number of banks in the united states has been increasing dramatically due to deregulation of the industry. 2) federally insured mortgages are called conventional mortgages. Answer: false 3) accrued interest owed to the bond seller increases […]

1) the nyse recently merged with the london stock exchange to form the merged company nyse euronext. 2) loans comprise the single largest asset category for a bank. Answer: true 3) writing a call option on a bond pays off […]

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. Answer: […]

1) an example of a pure arbitrage strategy is to simultaneously buy and sell the same security in two different markets at different prices. 2) credit unions are not taxed, as a result well-run credit unions are often able to […]

1) risk arising from unhedged positions in securities, currencies, and derivatives is called market risk. 2) the policy employed in the 1980s of not closing economically insolvent savings institutions was called regulatory forbearance. Answer: true 3) an unsecured bond that […]

1) if you earn 0.5% a month in your bank account, this would be the same as earning a 6% annual interest rate with annual compounding. 2) both retail and wholesale cds are negotiable instruments despite their different denominations. Answer: […]

1) preferred stockholders have a claim senior to common stock but junior to bondholders. 2) the writer of an american-style bond call option has the right, but not the obligation, to buy the bond at a preset price until the […]

1) a u.s. bank has £900 million in loans it has made to corporate customers and it has £750 million in deposits when the exchange rate is £1 = $1.98. the bank will have a net foreign exchange loss on […]

1) if you buy 100 shares of ibm stock in anticipation that earnings will increase by more than anticipated, you are engaging in what is termed a risky arbitrage. 2) basis risk is the risk that the prices or value […]

1) a financial intermediary that can engage in a broad range of financial service activities is termed a universal fi. 2) a mortgage pass-through security is a bond issue backed by a group of mortgages that pays fixed semi-annual coupon […]

1) tips are a treasury offering that protects investors from unexpected increases in inflation. 2) a corporation informs the bank they will immediately draw down the maximum amount on their credit line. this is an example of liability side risk. […]

1) using stored liquidity to offset a deposit drain will reduce the size of the bank, but using purchased liquidity to offset the drain will not. 2) a u.s. bank has £700 million in loans it has made to corporate […]

1) buying large blocks of securities and holding them until the price rises sufficiently to warrant a sale is an example of pure arbitrage. 2) in a mutual organization, the depositors are owners of the institution. Answer: true 3) if […]

1) households generally supply more funds to the markets as their income and wealth increase, ceteris paribus. 2) due to convexity problems, banks are actually better off using the simpler repricing model to manage interest rate risk rather than the […]

1) forward contracts are marked to market daily. 2) provision for loan losses, net charge-offs, and the percentage of nonperforming loans all increased dramatically in 2007 . Answer: true 3) the lower the level of interest rates, the greater a […]

1) for securities firms, income from investment management is more stable than income from underwriting or trading activities. 2) buying large blocks of securities and holding them until the price rises sufficiently to warrant a sale is an example of […]

1) profitability at investment banking firms has been very stable each year since 2001 . 2) the repricing gap fails to consider how the value of fixed income accounts will change when rates change. Answer: true 3) the sale or […]

1) after deposits, the second largest source of funds at savings institutions is fhlb loans. 2) sales finance institutions specialize in loan sales to banks and thrifts. Answer: false 3) relying on purchased liquidity is more risky than relying on […]

1) callable bonds have lower required yields than similar convertible bonds, ceteris paribus. 2) most state and local pension funds are underfunded. Answer: true 3) brokerage commission income and stock market valuations tend to move inversely in most years, including […]

1) a bank that has made floating rate loans funded by longer maturity deposits is at risk from falling interest rates. 2) although an investor can write checks on a cash management account held with a broker, regulations prevent the […]

1) mmdas are a type of savings account that has some limited checking features. these accounts were designed to help banks compete with mmmfs. 2) there are three types of major financial markets today: primary, secondary, and derivatives markets. the […]

1) a zero coupon bond has a duration equal to its maturity and a convexity equal to zero. 2) a securities subsidiary of a bank holding company that engages in investment banking is called a riegle-neal affiliate. Answer: false 3) […]

1) in a best efforts offering, the investment banker acts as an agent for the issuer rather than as a principal. 2) an improvement in economic conditions would likely shift the supply curve down and to the right and shift […]

1) small banks control about 70% of banking industry assets. 2) swaps and forwards are subject to contingent risk; exchange-traded futures and options are not. Answer: true 3) the maximum gain (ignoring commissions and taxes) from buying an at-the-money bond […]

1) the allowance for loan and lease losses is bank management’s estimate of the amount of gross loans and leases that will not be repaid to the bank. 2) assets in a bank’s trading book tend to be held for […]

1) financial planning encompasses all but the following: a.setting long-run strategic goals b.investing the firms long-term cash c.preparing quarterly and annual budgets d.all of the above 2) a firm may be unable to accept all projects that are expected to […]

1) narrbegin: miller juice miller juice miller juice is a young company that currently does not pay a dividend. the company retains all their earnings to finance their growth. however, ten years from now the company is expected to start […]

1) narrbegin: dsss corporation dsss corporation dsss corporation is considering a new project to manufacture widgets. the cost of the manufacturing equipment is $125,000. the cost of shipping and installation is an additional $10,000. the asset will fall into the […]

1) you are the manager of a company that has an equal chance of earning either $20,000 or $40,000 before taxes. your firm is subject to a 20% tax rate on the first $30,000 and 35% on all income earned […]

1) retained earnings represents a.a pool of cash that the firm can use should a need for cash arise b.the increased market value, due to managements efforts, of all of the firms equity securities issued c.earnings that a firm reinvested […]