fin
A T-bond with a $1,000 par is quoted at a bid of 105.21875 and an ask of 105.28125. If you sell the bond, you will receive
$1,052.81
An investment banker agrees to a firm commitment offering of two million shares of Ace stock. The offer price is set at $55 and the spread is 50 cents per share. If the stock is actually sol d to the public at $53.80, however, what is the investment banker's gain or loss?
$1,400,000 loss
A company issued 5 million new shares of stock. An investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 3.7 million shares for $34.50 per share, and it charges commission of $0.52 per share sold. How much money will the company receive?
$125,726,000
A $2 million jumbo CD is paying a quoted 3.55 percent interest rate on 180-day maturity CDs. How much money will you have at maturity if you invest in the CD?
$2,035,500
An investment banker agrees to a firm commitment offering of 1.2 million shares of Bally stock. The offer price is set at $25.50 and the spread is 30 cents per share. If the stock is actually sold to the public at $26.00, however, what is the amount of funds Bally receives?
$30,240,000
A share of stock expects a dividend of $3.11 per share in the coming year, given an expected dividend growth rate of 6.30%, and a discount rate of 15.30%, what is the price per share of the stock?
$34.56
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)?
$342,742
A bank ha s on-balance-sheet assets with a book value of $940 million and a market value of $985 million and on-balance-sheet liabilities with a book value of $900 million and a market value of $930 million. The bank also has off-balance-sheet assets currently value d at $150 million and off-balance-sheet liabilities worth $160 million. Stockholders' net worth should be valued at __ million.
$45
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 charges a 3.45 cent commission per share sold, what is the amount of funds Crew receives?
$86,163,750
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 charges a 3.45 cent commission per share sold, what is the amount of funds Crew receives? (Ignore any other fees or expenses.)
$86,163,750
If a $10,000 par T-bill has a 3.75 percent discount quote and a 90-day maturity, what is the price of the T-bill to the nearest dollar?
$9,906.
You are eyeing an investment in Treasury Notes for a full lot (i.e. PAR=$100,000), and find a note with a maturity of 2 years. This particular Treasury has a YTM of 2.69%, and a stated rate of interest of 0.63% with a maturity of 2 years. The market price (P¯ b) of this treasury is closest to?
$96,014.89
The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488 percent. If the face value is $1,000, what should be the QUOTED cost of the bond today (use semiannual compounding)?
103.2795
Equity capital at commercial banks in 2016 comprised about of liabilities and equity.
11 percent
A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $95,000 per year an d the cash value is expected to be $1,100,000 at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.122 percent?
18
Aboutn____ of federally insured banks are nationally chartered and about _____ of federally insured banks are members of the Federal Reserve.
19 percent; 34 percent
Hedge funds charge expense fees and performance fees. The average performance fee on hedge funds is .
20 percent
There is a corporate bond in the market that is selling for $1,243.97 each, stated rate of interest of 4.70% with a maturity of 20 years. What is the yield-to-maturity (YTM) of this bond?
3.06%
A bank ha s on-balance-sheet assets with a book value of $940 million and a market value of $985 million and on-balance-sheet liabilities with a book value of $900 million and a market value of $930 million. The bank also has off-balance-sheet assets currently value d at $150 million and off-balance-sheet liabilities worth $160 million. Stockholders' net worth should be valued at ____ million.
45
To be well-capitalized, a bank must have a leverage ratio of at least percent, Tier I capital to credit risk-adjusted asset ratio of at least percent, and a total risk-based capital ratio of at least percent.
5; 8; 10
Suppose that $10 million face value commercial pap er with a 270-day maturity is selling for $9.55 million. What is the BEY on the paper?
6.37 percent
You buy a $10,000 par Treasury bill at $9,575 and sell it 60 days later for $9,675. What was your EAR?
6.52 percent
How many members of the Federal Reserve Bank Board of Governors are there and what is their term appointment on the board?
7 members, 14 years, non-renewable
Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?
AA-rated callable corporate bond with a sinking fund
Which one of the following statements concerning annuities offered by insurers is not true?
Annuity payments must cease upon the policyholder's death.
When the investment banker sells the new securities on commission without guaranteeing the sale of the whole issue, the process is called
Best effort
Which of the following is a common activity of the Federal Reserve Banking system?
Check clearing
Which of the following is a capital market security?
Common Stock
What is the main asset held by private pension funds (401Ks)?
Corporate equities
If a bank invested $75 million in a two-year asset paying 12 percent interest per year and simultaneously issued a $75 million one-year liability paying 10 percent interest per year, what would be the net interest income in two years if, at the end of the first year, all interest rates increased by 1.5 percentage point?
Decrease by $1.125 million
learn
Describe the difference between the three major types of deposits that commercial banks take on: Demand Accounts, NOW Accounts and Negotiable Certificates of Deposit (CDs). How do each of these accounts affect lending at the commercial bank.
If the Federal Reserve decreases the reserve ratio, the supply of loanable funds must increase
False, lowering the reserve ratio does not necessarily mean loanable funds will increase as excess reserves may increase instead
A repo is in essence a collateralized
Fed funds loan.
The ___ introduced the prompt corrective action policy that requires federal intervention when a bank's capita l falls below certain minimums.
Federal Deposit Insurance Corporation Improvement Act
The introduced the prompt corrective action policy that requires federal intervention when a bank's capital falls below certain minimums.
Federal Deposit Insurance Corporation Improvement Act
The organization responsible for the conduct of monetary policy in the United States is the:
Federal Reserve System
Which one of the following institutions is the least regulated?
Finance companies
Which one of the following utilizes the least amount of deposits as a source of funds?
Finance companies
Which of the following best describes the roles of financial institutions in the economy?
Financial institutions are responsible for aggregating and reallocating resources and valuing and redistributing risk within the economy. In this way they improve the efficiency of the economy over all
Which one of the following securities firms' activities is normally the most risky ?
Firm commitment offering
Which of the following is true?
Futures contracts require an initial margin requirement be paid.
Which one of the following entities is an actual government-owned enterprise dealing with mortgages?
GNMA
Banks differ from other types of depository institutions in that: I. banks have more diversified asset portfolios. II. banks obtain funds from more different types of sources. III. the average size bank is larger than other depository institutions.
I , II, and III
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
I and II
Credit unions are I. mutual associations. II. not open to the general public. III. for profit institutions.
I and II only
Having longer maturity assets than liabilities causes banks to bear which of the following risks? I. Interest rate risk II . Liquidity risk III . Credit risk
I and II only
Tier I (core) capital includes at least some part of which of the following? I. Common stockholders' equity II. Retained earnings III. Subordinated debt IV. Allowance for loan and lease losses
I and II only
A publicly traded company gave its existing shareholders the opportunity to purchase from the new stocks that it will issue. The existing shareholders can purchase 3 new shares at a price of $10 per share for every 8 shares held. This is an example of:
Rights offering
The insures losses of funds deposited with securities firms in the event of failure of a securities firm.
SIPC
A Treasury security in which periodic coupon interest payments can be separated from each other and from the principal payment is called a
STRIP
The agreement that ended the era of fixed exchange rates for the major economies was called the
Smithsonian Agreement II
In 2016, the greatest dollar volume of U.S. corporate underwriting occurred for which type of security?
Straight corporate debt
Which of the following best explains the difference between the Federal Funds Rate and the Discount Rate
The Federal Funds Rate is the rate of interest charged between financial institutions, and the Discount Rate is the rate charged by the FED to financial institutions.
Which of the following is a secondary market transaction?
The Magellan Fund buys $100 million of previously issued bond
Which of the following is a primary market transaction?
The New Company issues $50 million of common stock in an IPO.
Using the market price for an asset and all of it's expected cash flows, in solving for the rate of the asset what is the rate that you find?
The expected return.
Which of the following best describes the process of finding the appropriate value of a stock?
The present value of all future dividends or cash flows discounted at the required rate of return for that particular stock.
Which of the following is a major responsibility of the Federal Open Market Committee?
To manage the money supply of the United States economy by setting reserve requirements and the discount rate.
Who is the current President of the Federal Reserve Bank of Richmond (District 5)?
Tom Barkin
If the slope is upward along the entire curve, then under pure expectations/UET the longer the maturity the higher the rate, the longest maturity in the list is five years.
True
Which one of the following statements about venture capitalists is not correct?
Venture capitalists are passive investors
Is the Federal Reserve Bank independent of the United States government?
Yes.
A banker's acceptance is
a liability of the importer and the importer's bank.
You have agreed to deliver the underlying commodity on a futures contract in 90 days. Today the underlying commodity price rises and you get a margin call. You must have
a short position in a futures contract
An entrepreneur looking for financing to get her small personally owned business up and running should probably consider
a venture capitalist
Insurance companies face the problem of when people with highest probability of getting the insurance payoffs are the ones who purchase insurance.
adverse selection
The preemptive right is designed to
allow existing shareholders to buy shares of the new offering if they desire.
The value of the British pound changed from $1.23 to $1.32. We can say that the pound has and the dollar has .
appreciated; depreciated
A time draft payable to a seller of goods with payment guaranteed by a bank is a
banker's acceptance
Hybrid mutual funds normally invest significant amounts in
both common stock and long-term bonds.
The largest single type of holder of common stock is (are):
brokers and dealers.
Underwriting new securities issuance requires that the investment bank
buys the issue at a certain price and then sells it in the primary market.
Which one of the following statements about commercial paper is not true? Commercial paper issued in the United States
carries an interest rate above the prime rate.
A short-term unsecured promissory note issued by a company is
commercial paper.
In 2016, credit union's biggest type of loans was .
consumer loans
The provision of banking services to other banks, such as check clearing, foreign exchange trading, and so forth, is an example of
correspondent banking.
If Moody's or Standard and Poor's downgrades its rating on a corporate bond_, the demand for the bond and its yield _
decreases; increases
The value of the British pound changed from $1.40 to $1.15. We can say that the pound has and the dollar has .
depreciated; appreciated
By type of fund, there are more funds than any other.
equity
When an investment banker purchases an offering from a bond issuer and then resells it to the public, this is known as a
firm commitment.
If the expected path of one-year interest rates over the next five years is 1 percent, 2 percent, 3 percent, 4 percent, and 5 percent, then the pure expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of?
five years
LIBOR is generally the ___ Fed funds rate because foreign bank deposits are generally ___ than domestic bank deposits.
greater than; more risky
Mortgage payments are ___ on a 15-year fixed-rate mortgage than on a 30-year fixedrate mortgage, and ____ is paid on a 15-year mortgage than on a 30-year mortgage; ceteris paribus
higher; more principal
The largest proportion of long-term mutual fund assets is held by
household sector
During an economic expansion, the supply of bonds ___ and the supply curve shifts to the ___ .
increases; right
A fixed-rate mortgage originator is adversely affected by ___ interest rates while the borrower is adversely affected by ___ interest rates.
increasing; decreasing
A fixed-rate mortgage originator is adversely affected by interest rates while the borrower is adversely affected by interest rates.
increasing; decreasing
ETFs are a direct competitor to
index funds
Holding everything else constant, an increase in the money supply causes:
interest rates to decline initially.
A captive finance company is one that
is owned by a retailer or manufacturer
Commercial banks are the __ financial intermediary in the United States as measured by asset size.
largest
With a fixed-rate mortgage, the bears the _interest rate risk and with an ARM the bears the _ interest rate risk.
lender; borrower
are used extensively to finance security holdings. In 2007, many investment banks and other financial institutions were unable to roll over their maturing repurchase agreements during the subprime mortgage crisis. This inability to get new repo financing is an example of
liquidity risk.
In October 2005, the Bankruptcy Reform Act was signed into law. This law primarily
made it more difficult for many debtors to receive bankruptcy protection
State chartered banks __ be members of the Federal Reserve System and nationally chartered banks __ be members of the Federal Reserve System.
may; must
As the economy weakens, one would expect investment in funds to increase and investment in funds to decrease, ceteris paribus.
money market mutual; equity
Property and casualty insurers hold short-term assets than life insurers because property and casualty loss rates are predictable than life insurance loss rates.
more; less
As a percentage of total assets, credit unions invest __ in securities than savings institutions and ____ in consumer loans than commercial banks.
more; more
As a percentage of total assets, credit unions invest ___ in securities than savings institutions and ___ in consumer loans than commercial banks.
more; more
In a Treasury auction, preferential bidding status is granted to
noncompetitive bidders.
Rates on federal funds and repurchase agreements are stated
on a bond equivalent basis with a 360-day year
The trading activity involving purchases of large blocks of securities on the expectation of a favorable price move over the next several weeks or months is called
position trading
An example of off balance sheet activity includes:
purchasing a futures contract.
Factoring is
purchasing corporate accounts receivables at a discount.
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
pure arbitrage.
In year one, a bank facing reinvestment risk earns 11 percent on its assets and pays 10 percent on its liabilities. In year two, the bank had a negative profit spread of 100 basis points. Which of the following is true? In year two,
rates fell 200 basis points.
Explain and describe one change that occurred as a result of the Financial Modernization Act of 1999 that altered the nature of commercial banking. Be sure to explain how this change affected the behavior of banks and any risks that were created as a result.
read it
The largest single category of loans on the typical bank's balance sheet in 2016 was
real estate loans.
Fisher predicted that nominal rates are determined by:
real rates of interest and inflation
The major result of the NSMIA was to
reduce state regulatory powers over securities firms
In a ___ the firm preregisters with the SEC any securities it wishes to sell over the next two years.
shelf registration
In a ___the firm preregisters with the SEC any securities it wishes to sell over the next two years
shelf registration
Sales finance companies
specialize in making loans to customers of a specific retailer or manufacturer
A contingent promise by a bank to pay a bill when it comes due if the bill's originator fails to pay is an example of a
standby letters of credit
An agreement between two parties to exchange a series of specified periodic cash flows in the future based on some underlying instrument or price is a(n)
swap contract
Interest income from Treasury securities is , and interest income from municipal bonds is always .
taxable at federal level only; exempt from all taxes
A bank invests $250 million to add the ability to provide online bill paying for its customers. Usage of the new service is at about 50 percent of expected usage. This is an example of
technological risk.
Problem MONDEX spent $50 million to develop the Smart Card, but tests of prototypes in New York and Canadian cities revealed very little consumer interest. This is an example of
technological risk.
A best efforts offering is one in which
the investment banker acts only as a distribution agent.
For most financial institutions, present value uncertainty is the risk that
the market value of an asset (liability) will decline if interest rates increase.
A bank has Tier I capital of $90 million and Tier II capital of $70 million. The bank has total assets of $2,522 million and risk-weighted assets of 2,017.6 million. This bank is
undercapitalized .
The term "variable" in a variable life policy refers to the
variable growth rate of the cash value of the policy.
Investment firms that pool money from individuals and/or institutions and invest equity funds in start-up firms are called
venture capital firms
CHIPS and ACH are
wholesale electronic payment systems
Explain the main objective of a commercial bank with respect to net spread and leverage.
write it down fr
Nationally chartered banks receive chartering and merger approval from the
Office of Comptroller of the Currency.
The pound is worth 1.2569 euros and the euro is worth $1.5568. Statistical analysis indicates that when the euro rises 1 percent against the dollar, the pound rises 0.5 percent against the euro and vice versa. A U.S. bank has assets of 40 million pound that mature in one year funded with liabilities of 55 million euro due in six months. The bank would be hurt by: I. an increase in the value of the euro against the dollar. II. a decrease in the value of the euro against the dollar. III. an increase in euro interest rates relative to pound interest rates. IV. an increase in pound interest rates relative to euro interest rates.
I and III only
Day-to-day trading practices of securities firms currently may be regulated by which of the following? I. FINRA II. SEC III. Federal Reserve IV . SIPC
I only
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, HUD's Office of Indian and Public Housing, and USDA Rural Development loans. IV. GNMA requires that all mortgages in the pool have the same interest rate.
I, II, III, and IV are true.
The FDIC may require an undercapitalized bank to I. provide the FDIC with a capital restoration plan. II. cease acquiring brokered deposits. III. obtain FDIC approval for all acquisitions. IV. suspend dividends and management fees. V. suspend payments on subordinated debt.
I, II, III, and IV only
In recent years defined contribution plans have grown faster than defined benefit plans in which of the following areas? I. Fund assets II. Number of funds III. Number of plan participants
I, II, and III
ETFs have several advantages over index funds, including the ability to: I. trade throughout the day at continuously updated prices. II. purchase ETF shares on margin. III. sell ETF shares short. IV. sell the shares back to the fund.
I, II, and III only
Money market securities exhibit which of the following? I. Large denomination II. Maturity greater than one year III. Low default risk IV. Contractually determined cash flows
I, III, and IV
In a forthcoming bear market, which option positions may make money? I. Buying a call. II. Writing a call. III. Buying a put. IV. Writing a put.
II and III
Which of the following is/are true about callable bonds? I. Must always be called at par II. Will normally be called after interest rates drop III. Can be called by either the bondholder or the bond issuer IV. Have higher required returns than non-callable bonds
II and IV only
Which one of the following intermediaries is likely to engage in more asset liability maturity matching?
Life insurers
The largest center for trading in foreign exchange is
London
Which of the following would normally be banking book assets rather than trading book assets?
Long-term loans
An investment bank agrees to pay $26.75 for 5 million shares of a company in a firm commitment stock offering. It then can sell those shares to the public for $25.50 per share. What is the profit to the investment bank?
Loss of $6,250,000
Security dealers who will buy or sell securities at any time in the market are called:
Market makers
A guarantee issued by an FI that obligates the FI to pay if the purchaser of the letter defaults on a debt is called a
None of these options are correct.
