Financial institutions & markets final
Open Banking and PSD2 have catalyzed the development of ______ which provide financial APIs to help incumbent banks comply and compete.
fintech utilities
You would like to purchase a Treasury bill that has a $19,500 face value and is 56 days from maturity. The current price of the Treasury bill is $19,375. Calculate the discount yield on this Treasury bill.
iTreasury bill, d = (($19,500 − $19,375)/$19,500) (360/56) = 4.12% A=P(1+r)^n
Security dealers who will buy or sell securities at any time in the market are called:
market makers.
Savings institutions must have at least 65 percent of their assets in mortgage-related areas in order to maintain their thrift charter. Group startsTrue or False
true
The difference between the private costs of regulations and the private benefits for the producers of financial services is called the net regulatory burden.
true
The top 10 property and casualty firms underwrite half of all the P&C premiums written.
true
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. TC/RWA = ($90 million + $70 million)/$2,017.6 million = 0.0793, or 7.93%; Tier I/RWA = $90 million/$2,017.6 million = 0.0446,or 4.46%; TC/TA = ($90 million + $70 million)/$2,522 million = 0.0634, or 6.34%, the first ratio puts the bank in the undercapitalized zone.
Investment firms that pool money from individuals and/or institutions and invest equity funds in start-up firms are called:
venture capital firms.
A bank has total assets of $620 million and $68.2 million in equity. The managers of the bank realize that $18.6 million of its $372 million loan portfolio will not be repaid. After the bank charges off these unexpected bad loans, the bank's equity to asset ratio will be __________________.
($68.2 million − $18.6 million)/($620 million − $18.6 million) = 0.0825, or 8.25%
A bank has an interest rate spread of 150 basis points on $30 million in earning assets funded by interest-bearing liabilities. However, the interest rate on its assets is fixed and the interest rate on its liabilities is variable. If all interest rates go up 50 basis points, the bank's new pretax net interest income will be __________.
(1.50% − 0.50%) × $30 million = $300,000
Which one of the following is the definition of the net interest margin?
(Interest income − Interest expense)/Earning assetsCorrect
In terms of profitability, a well-run bank usually has an ROA of:
0.5-3 percent.
ou purchase a $255,000 house and you pay 20 percent down. You obtain a fixed-rate mortgage where the annual interest rate is 5.85 percent and there are 360 monthly payments. What is the monthly payment?
0.80 × $255,000 = Pmt × PVIFA (0.0585/12, 360 months); Pmt = $1,203.48 Calculator Solution :Amount borrowed is 0.80 × $255,000 = 204,000 PV = −204,000 N = 360 FV = 0 I = 0.0585/12 = 0.4875 Solve for PMT to get $1,203.48.
Equity capital at commercial banks in 2019 comprised about ____________ of liabilities and equity.
11 percent
You want to buy a $250,000 house and you will use a conventional mortgage. What is the minimum down payment you have to make to avoid having to purchase mortgage insurance?
20% of $250,000 is $50,000
How much money would you have to deposit today in order to have $5,000 in four years if the discount rate is 7 percent per year?
3814.48
You buy a principal STRIP maturing in five years. The price quote per hundred of par for the STRIP is 75.75 percent. Using semiannual compounding, what is the promised yield to maturity on the STRIP?
5.632% [(100/75.75)(1/(5 × 2)) − 1] × 2 = 0.05632, or 5.632% Using the financial calculator: PV = −75.75 FV = 100 PMT = 0 N = 10 Solve for I/Y then multiply with 2. I/Y = 2.816%; Yield to maturity = 2 × 2.816 = 5.632%
Bank Three currently has $850 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits. a. If the Federal Reserve decreases the reserve requirement to 4 percent, show the balance sheet of Bank Three and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume Bank Three withdraws all excess reserves and gives out loans and that borrowers eventually return all of these funds to Bank Three in the form of transaction deposits.b. Redo part (a) using a 10 percent reserve requirement.
A. Current $850 million in transaction deposits in Balance Sheets Current Reserve requirements in deposits = $850 * 6% = $51 million New Reserve requirement as per 4% = $850 * 4% = $34 million Change in bank deposits = 1/0.04 * ($51 million - $34 million) = $425 million Transaction Deposits = $51 million /0.04 = $1,275 million Loans = 1,275 - 51 = $1,224 millions B. Current $850 million in transaction deposits in Balance Sheets Current Reserve requirements in deposits = $850 * 6% = $51 million New Reserve requirement as per 10% = $850 * 10% = $85 million Change in bank deposits = 1/0.1 * ($51 million - $85 million) = $340 million Transaction Deposits = $51 million /0.1= $510 million Loans = 510 - 51 = $459 millions
All else held constant, which one of the following bonds is likely to have the highest required rate of return?
AA-rated callable corporate bond without a sinking fund
What does an asset transformer do? Why is asset transformation a risky activity?
Asset Transformers buy securities from corporation create mutual funds out of the securities bought and resell it to the public with a spread on their purchase price. These mutual funds provide more benefits to customers than directly buying from customers.It is a risky activity because rate of return required from asset transformer will be higher than from individual company due to the spread on it making it more risky. Higher the spread more is the risk of these assets. An asset transformer buys one security from a customer and makes or creates a separate claim in order to raise funds. For example, a bank accepts deposits and uses them to make loans. This is normally a risky activity because the asset acquired will be riskier than the security (or deposit) used to raise funds because the intermediary hopes to profit on the spread between the rate earned on the asset claim and the rate paid on the liability claim. In order for this spread to be positive, generally speaking, the asset must be riskier than the liability.
On March 13, 2020, you convert 600,000 U.S. dollars to Japanese yen in the spot foreign exchange market and purchase a six-month forward contract to convert yen into dollars. How much will you receive in U.S. dollars at the end of six months? Use the data in Table 9-1 for this problem. (Round your answer to 2 decimal places
At the beginning of the month you convert $600,000 to yen at a rate of 107.98 yen per dollar, or you will have $600,000 × 107.98 = ¥64,788,000. The 6-month forward rate for the U.S. dollar for Japanese yen on March 13, 2020 was $0.00941/¥1. So, at the end of the month you will convert ¥64,788,000 to dollars at $0.00941 per ¥, or you will have ¥64,788,000 × 0.00941 = $609,655.08.
In a bear market, which option positions 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 not one of the advantages that retail banks maintain over fintechs?
Banks are known for having greater agility and a more innovative mindset.
Compute the future values of the following annuities first assuming that payments are made on the last day of the period and then assuming payments are made on the first day of the period: (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))
Calculator
Use the information in the following stock quote to calculate McKesson's earnings per share over the last year. (Round your answer to 2 decimal places. (e.g., 32.16)) (15)Name Symbol Open 51.00 High 51.14 Low 50.28 Close 50.60 Net Change −1.01 %Change −1.96 Volume 2,729,785 52 Week High 61.49 52 Week Low 43.57 Dividend 0.62 Yield 1.23 PE 13.00 YTD%Change -2.04
Column 14 is the McKesson's P/E ratio, 13.00; Column 6 reports McKesson's price—the numerator of the P/E ratio—as $50.60. Thus, McKesson's earnings per share—the denominator of the P/E ratio—over the period August 2009 through August 2010 must have been $3.89 per share: E = P ÷ P/E = $50.60 ÷ 13.00.
_____________ are the most diversified of depository institutions and ______________ are on average the largest depository institutions.
Commercial banks; commercial banks
In general terms, which one of the following plan types is the riskiest for an employee on a year-to-year basis?
Defined contribution plan invested in equities
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
A particular security's equilibrium rate of return is 9 percent. For all securities, the inflation risk premium is 3.40 percent and the real risk-free rate is 2.3 percent. The security's liquidity risk premium is 0.95 percent and maturity risk premium is 0.85 percent. The security has no special covenants. Calculate the security's default risk premium.
Default risk premium = 1.50% 9% = 2.30% + 3.40% + 0.95% + 0.85% + Default risk premium 9% - (2.30% + 3.40% + 0.95% + 0.85%) = Default risk premium
What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 95.375 percent of its face value and is 65 days from maturity?
Discount yield: iTreasury bill, d = (($1 million − $953,750)/$1 million)(360/65) = 25.615% Bond equivalent yield: iTreasury bill, be = (($1 million − $953,750)/$953,750)(365/65) = 27.231% Effective annual return: EAR = (1 + 0.27231/(365/65))365/65 − 1 = 30.462%
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
Secondary markets help support primary markets because secondary markets: I. offer primary market purchasers liquidity for their holdings. II. update the price or value of the primary market claims. III. reduce the cost of trading the primary market claims.
I, II, III
Which of the following indexes are value-weighted? I. NYSE Composite II. S&P 500 III. NASDAQ Composite IV. Dow Jones Industrial Average
I, II, and III only
Calculate the yield to maturity on the following bonds: A 9.2 percent coupon (paid semiannually) bond, with a $1,000 face value and 17 years remaining to maturity. The bond is selling at $975. An 8.2 percent coupon (paid quarterly) bond, with a $1,000 face value and 10 years remaining to maturity. The bond is selling at $905. An 11.2 percent coupon (paid annually) bond, with a $1,000 face value and 6 years remaining to maturity. The bond is selling at $1,055.
FV = Future Value / Face Value = -$1,000.00 -$1,000.00 -$1,000.00 PV = Present Value = $975.00 $905.00 $1,055.00 N = Number of years remaining x frequency = 34 40 6 PMT = Payment = Coupon rate x Face value / frequency = -$46.00 -$20.50 -$112.00 CPT > I/Y = Rate per period or YTM per period = 4.749632 2.423591 9.939401 YTM annual = Periodic YTM*frequency / 100 = 9.499% 9.694% 9.939%
At equilibrium, a security's required rate of return will be less than its expected rate of return.
False
Dual class stock refers to firms with both common and preferred stock outstanding.
False
In an environment of declining interest rates, financial institutions generally have a decreased incentive to focus on cost-cutting measures.
False
In the United States, the SEC provides deposit insurance for $250,000 per person per bank.
False
Which of the following is the primary regulator of bank holding company activities?
Federal Reserve
You can save $2,000 per year for the next four years, at the start of each year, in an account earning 6 percent per year. How much will you have at the end of the fourth year if you make the first deposit today?
Future value of annuity due=(1+rate)* Annuity[(1+rate)^time period-1]/rate =1.06*2000[(1.06)^4-1]/0.06 =2000*4.63709296 =$9274.19(Approx).
As a result of the alleged conflicts of interest between analysts and underwriting, which of the following changes were implemented? I. Analysts cannot participate in nor attend certain presentations to potential investors conducted by investment bankers associated with underwriting an issue. II. Analyst compensation can no longer be tied to the amount of underwriting business a firm generates. III. Securities firms must divest stock research divisions to ensure independence from their investment banking business.
I and II only
Actively managed funds find it difficult to consistently earn higher risk-adjusted returns than a broad stock market index. The difference in return between actively managed funds and passively managed index funds can be explained by which of the following? I. Lower expense ratios for index funds II. Higher turnover ratios for index funds III. Differences in returns in sectors of the market and the overall market return
I and III only
Bank A has a higher ROA than Bank B. Both banks have similar interest income to asset ratios and noninterest income to asset ratios. We know that: I. Bank A has a higher profit margin than Bank B. II. Bank A has a higher AU ratio than Bank B. III. Bank A must have a higher provision for loan loss to operating income ratio.
I only
The MEP company has issued 5,110,000 new shares. Its investment bank agrees to underwrite these shares on a best efforts basis. The investment bank is able to sell 4,310,000 shares for $55 per share. It charges MEP $1.80 per share sold. a. How much money does MEP receive? (Do not round intermediate calculations. Enter your answer in dollars, not in millions.)b. What is the investment bank's profit? (Enter your answer in dollars, not in millions.)c. What is the stock price of MEP? (Enter your answer in dollars, not in millions.)
MEP receives $229,292,000 = (($55 − $1.80) × 4,310,000), the investment bank's profit is $1.80 per share × 4,310,000 shares = $7,758,000, and the stock price is $55 per share since that is what the public pays.
BSW Corporation has a bond issue outstanding with an annual coupon rate of 5.8 percent paid quarterly and four years remaining until maturity. The par value of the bond is $1,000. Determine the fair present value of the bond if market conditions justify a 12 percent, compounded quarterly, required rate of return.
N=16 I/Y= 3% PMT= -14.5 FV= -1000 PV= 805.3
Which of the following is/are money market instrument(s)?
Negotiable CDs
Calculate the present value of $6,000 received five years from today if your investments pay for the following interest rates. (
PV= P/(1+r)^n
You buy a stock for $34 per share and sell it for $36 after you collect a $1.00 per share dividend. Your pretax capital gain yield is ________________ and your pretax dividend yield is ________________.
Pretax capital gain yield = ($36 − $34)/$34 = 0.0588, or 5.88%; pretax dividend yield = $1/$34 = 0.0294, or 2.94%
The FOMC has instructed the FRBNY Trading Desk to purchase $480 million in U.S. Treasury securities. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits. Assume U.S. banks withdraw all excess reserves and give out loans. a. Assume also that borrowers eventually return all of these funds to their banks in the form of transaction deposits. What is the full effect of this purchase on bank deposits and the money supply?b. What is the full effect of this purchase on bank deposits and the money supply if borrowers return only 94 percent of these funds to their banks in the form of transaction deposits?
Purchase of U.S Treasury Securities$480 Million Reserve Requirement-6% of transaction deposit a)Effect of purchase on bank deposits and money supply Bank deposit would increase if U.S.Treasury are Purchased(1/Reserve requirement)*Purchase of U.S.Treasury Securities(Transaction Deposits)(1/0.06)*$480Million16.6666666666667*$480Million8000Million$8.000 a) Increase in bank deposits and money supply $8.00 billionb)Effect of purchase on bank deposits if borrowers returns only 94% of these funds1/(Reserve requirement+(1-Return percentage)*Purchase of U.S.Treasury Securities(Transaction Deposits)1/(0.06+(1-0.94))*$480 Million1/(0.12)*$480 Million8.33333333333333*$480 Million4000Millionb) Increase in bank deposits and money supply $4.00 billion
You have purchased a put option on Kimberly Clark common stock. The option has an exercise price of $85 and Kimberly Clark's stock currently trades at $86.18. The option premium is $1.38 per contract. One option equals 100 shares of the underlying stock. a. Calculate your net profit on the option if Kimberly Clark's stock price falls to $83 and you exercise the option. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations.) b. Calculate your net profit on the option if Kimberly Clark's stock price does not change over the life of the option. (Negative amount should be indicated by a minus sign.)
Purchase option:−$ 1.38× 100 shares Buy stock to exercise option:−$ 83.00× 100 shares Sell stock by exercising option:$ 85.00× 100 shares Net profit$ 0.62× 100 shares = $62 b.The option never moves into the money, so it would never be exercised. Purchase option:−$1.38× 100 sharesNet profit−$1.38× 100 shares = −$138
Anytown Bank has the following ratios: a. Profit margin: 34% b. Asset utilization: 10% c. Equity multiplier: 7X Calculate Anytown's ROA and ROE.
ROA = PM × AU = 0.34 × 0.10 = 0.0340 = 3.40% ROE = ROA × EM = 0.0340 × 7 = 0.2380 = 23.80%
Which one of the following has the highest concentration of mortgage-related assets on the balance sheet?
Savings institutions
If the interest rate in the United Kingdom is 5 percent, the interest rate in the United States is 6 percent, the spot exchange rate is $1.6921/£1, and interest rate parity holds, what must be the one-year forward exchange rate? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))
Since direct exchange rates are being used, (1 + rUS) = 1/S × (1 + rUK) × F 1.06 = 1/1.6921 × 1.05 × F F = 1.06 /(1/1.6921 × 1.05) = (1.06 × 1.6921)/1.05 = $1.7082/£1
On October 5, 2022, you purchase a $12,000 Treasury-note that matures on August 15, 2031 (settlement occurs one day after purchase, so you receive actual ownership of the bond on October 6, 2022). The coupon rate on the Treasury-note is 4.392 percent and the current price quoted on the bond is 105.78125 percent. The last coupon payment occurred on May 15, 2022 (144 days before settlement), and the next coupon payment will be paid on November 15, 2022 (40 days from settlement). a. Calculate the accrued interest due to the seller from the buyer at settlement.b. Calculate the dirty price of this transaction.
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. a.Accrued interest over the 144 days is calculated as: (4.392%/2) × 144/184 = 1.718609% of the face value of the bond, or $206.23 per $12,000 face value bond. b.Clean price + Accrued interest = Dirty pric 105.78125% + 1.718609% = 107.499859% of the face value of the bond, or $12,899.98 per $12,000 face value bond.
a. Suppose a 65-year-old person wants to purchase an annuity from an insurance company that would pay $20,300 per year until the end of that person's life. The insurance company expects this person to live for 15 more years and would be willing to pay 8 percent on the annuity. How much should the insurance company ask this person to pay for the annuity?b. A second 65-year-old person wants the same $20,300 annuity, but this person is healthier and is expected to live for 20 more years. If the same 8 percent interest rate applies, how much should this healthier person be charged for the annuity?c. In each case, what is the new purchase price of the annuity if the distribution payments are made at the beginning of the year?
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. a.20,300{[1−(1/(1+ 0.08)15)]/0.08} = $173,757.42 or using a financial calculator, N = 15, I = 8, PMT = 20,300, then compute PV = $173,757.42 b.20,300{[1−(1/(1+ 0.08)20)]/0.08} = $199,308.39 or using a financial calculator, N = 20, I = 8, PMT = 20,300, then compute PV = $199,308.39c.For 15 years, the lump sum is $173,757.42 × (1.08) = $187,658.01. For 20 years, the lump sum is $199,308.39 × (1.08) = $215,253.06.
You plan to purchase a $170,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 6.25 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage.b. Construct the amortization schedule for the first six payments.
Some values below may show as rounded for display purposes, though unrounded numbers should be used for the actual calculations. You will make a down payment of 20 percent of the purchase price, or you will make a down payment of $34,000 (0.20 × $170,000) at closing and borrow $136,000 through the mortgage. a.For your mortgage: $136,000 = PMT {[1 − (1/(1 + 0.0625/12)30(12))]/(0.0625/12)} or PMT = $136,000/{[1 − (1/(1 +0.0625/12)30(12))]/(0.0625/12)} therefore PMT = $136,000/162.41 = $837.38 Thus, your monthly payment is $837.38.
Aggregate finance company profitability was poor in the late 2000s primarily due to which segment of the finance company industry?
Subprime lending
An investor purchases a mutual fund for $75. The fund pays dividends of $3.50, distributes a capital gain of $4, and charges a fee of $4 when the fund is sold one year later for $77.50. What is the net rate of return from this investment? (Enter your answer to the nearest whole number.)
The dollar return is $3.50 + $4 + ($77.50 − $75) − $4 = $6. The rate of return is $6/$75 = 8%.
Pic An employee contributes $15,500 to a 401(k) plan each year, and the company matches 10 percent of this annually, or $1,550. The employee can allocate the contributions among equities (earning 11 percent annually), bonds (earning 5 percent annually), and money market securities (earning 3 percent annually). The employee expects to work at the company 15 years. The employee can contribute annually along one of the three following patterns:
The terminal value of the 401(k) plan, assuming all returns and contributions remain constant (at $17,050) over the fifteen years, will be: Option 1:$17,050 (0.7){[(1 + 0.11)^15 − 1]/0.11} + $17,050(0.3){[(1 + 0.05)^15 − 1]/0.05} = $521,002 Option 2:$17,050 (0.60){[(1 + 0.11)^15 − 1]/0.11} + $17,050 (0.35){[(1 + 0.05)^15 − 1]/0.05}+ $17,050 (0.05){[(1 + 0.03)^15 − 1]/0.03} = $496,592 Option 3:$17,050 (0.50){[(1 + 0.11)^15 − 1]/0.11} + $17,050 (0.40){[(1 + 0.05)^15 − 1]/0.05} + $17,050 (0.10){[(1 + 0.03)^15 − 1]/0.03} = $472,183
"On the run" Treasury notes and bonds are newly issued securities and "off the run" Treasuries are securities that have been previously issued.
True
Everything else equal, an effective annual rate will be greater than the bond equivalent yield on the same security.
True
Hedge funds can short sell securities, whereas most mutual funds cannot.
True
If interest rates increase, the value of a fixed-income contract decreases and vice versa.
True
If you believe that taxes are going to go up and you will likely have to pay a high tax rate when you retire, you will probably be better off with a Roth IRA than with a traditional IRA.
True
On a fixed-rate mortgage the dollars of interest the homeowner pays falls each year the mortgage is outstanding.
True
One of the factors responsible for globalization of financial markets and institutions is deregulation.
True
The Glass-Steagall Act came about due to concerns about excessive risk taking at banks and conflicts of interest between commercial and investment banking activities. Group startsTrue or False
True
The duration of a four-year maturity, 10 percent coupon bond is less than four years.
True
The monetary base is the amount of coin and currency in circulation plus reserves.
True
You plan to purchase a $270,000 house using a 15-year mortgage obtained from your bank. The mortgage rate offered to you is 5.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate your monthly payments on this mortgage.b. (1) Construct the amortization schedule for the mortgage.b. (2) How much total interest is paid on this mortgage?
You will make a down payment of 20 percent of the purchase price, or you will make a down payment of $54,000 (0.20 x $270,000) at closing and borrow $216,000 through the mortgage .a. For your mortgage:$216,000 = PMT{[1 - (1/(1 + 0.0500/12)15(12))]/(0.0500/12)} or PMT = $216,000/{[1 - (1/(1 + 0.0500/12)15(12))]/(0.0500/12) therefore, PMT = $216,000/126.4552 = $1,708.11 Thus, your monthly payment is $1,708.11 .b.Total amount paid = $1,708.11 × 180 months = $307,459.80. Total interest paid = $307,459.80 - $216,000.00 = $91,459.80.
A banker's acceptance is:
a liability of the importer and the importer's bank.
Your company sponsors a 401(k) plan into which you deposit 12 percent of your $55,000 annual income. Your company matches 50 percent of the first 3 percent of your earnings. You expect the fund to yield 8 percent next year. Assume you are currently in the 31 percent tax bracket. a. What is the total annual investment in the 401(k) plan at year-end? (Round your answer to the nearest whole number. (e.g., 32))b. What is your one-year return? (Round your answer to 2 decimal places. (e.g., 32.16))
a. & b .Your annual investment is Employee's contribution = $55,000 × 0.12 =$ 6,600 Tax Savings = $6,600 × 0.31 =2,046 Employee's net of tax contribution$ 4,554 Employer's match = $55,000 × 0.50 × 0.03 =825 Total 401(k) investment at year start = $6,600 + $8257,425 Your one-year return is 1-year earnings = $7,425 × 0.08 =594 Total 401(k) investment at year-end$ 8,019 Employee's 1-year return = ($8,019 − $4,554)/$4,554 = 76.09%
Megalopolis Bank has the following balance sheet and income statement. see picture
a. Return on equity = 5,000 / 28,200 = 17.73% b. Return on assets = 5,000 / 187,200 = 2.67% c. Asset utilization = (20,400 + 2,100) / 187,200 = 12.02% d. Equity multiplier = 187,200 / (12,000 + 4,000 + 12,200) = 6.64X e. Profit margin = 5,000 / (20,400 + 2,100) = 22.22% f. Interest expense ratio = 11,200 / (20,400 + 2,100) = 49.78% g. Provision for loan loss ratio = 2,100 / (20,400 + 2,100) = 9.33% h. Noninterest expense ratio = 1,100 / (20,400 + 2,100) = 4.89% i. Tax ratio = 3,100 / (20,400 + 2,100) = 13.78%
Forward contracts are marked to market daily.
false
The financial statements for First National Bank (FNB) are shown below: see picture a. Calculate the dollar value of FNB's earning assets. b. Calculate FNB's ROA. (Round your percentage answer to 2 decimal places. (e.g., 32.16)) c. Calculate FNB's asset utilization ratio. (Round your percentage answer to 2 decimal places. (e.g., 32.16) d. Calculate FNB's spread
a.Earning assets = Investment securities + Net loans= $4,400 + $2,235 + $16,225 − $1,825 = $21,035 b.ROA = ($2,950 − $1,960 − $250 + $210 − $490 − $70) / $25,290 = 1.54% c.Asset utilization = ($2,950 + $210) / $25,290 = 12.50% d.Spread = ($2,950 / $21,035) − ($1,960 / ($11,200 + $3,550 + $2,600)) = 2.73
You have purchased a put option on Pfizer common stock. The option has an exercise price of $54 and Pfizer's stock currently trades at $56. The option premium is $0.90 per contract. a. What is your net profit on the option if Pfizer's stock price does not change over the life of the option? b. What is your net profit on the option if Pfizer's stock price falls to $50 and you exercise the option?
a.If the price of the underlying stock is $56 (greater than the exercise price), you will not exercise the option. Thus, your profit is −$0.90 per share (the cost of the option). b.Total profit = ($54 − $50) − $0.90 = $3.10 per share
You can invest in taxable bonds that are paying a yield of 9.6 percent or a municipal bond paying a yield of 7.85 percent. Assume your marginal tax rate is 21 percent. a. Calculate the after-tax rate of return on the taxable bond? (Round your percentage answers to 2 decimal places. (e.g., 32.16))b. Which security bond should you buy?
a.If your marginal tax rate is 21 percent, the after-tax or equivalent tax exempt yield on the taxable bond is 9.6% (1 − 0.21) = 7.58%. b.The municipal that pays 7.85 percent is the better deal.
A mutual fund has 400 shares of General Electric, currently trading at $16, and 400 shares of Microsoft, Incorporated, currently trading at $28. The fund has 1,000 shares outstanding. a. What is the NAV of the fund? (Round your answer to 2 decimal places. (e.g., 32.16))b. If investors expect the price of General Electric to increase to $20 and the price of Microsoft to decline to $14 by the end of the year, what is the expected NAV at the end of the year? (Round your answer to 2 decimal places. (e.g., 32.16))c. Assume that the price of General Electric shares is realized at $20. What is the maximum price to which Microsoft can decline and still maintain the NAV as estimated in (a)? (Do not round intermediate calculations. Enter your answer to the nearest whole number.)
a.NAV = (400 × $16 + 400 × $28)/1,000 = $17,600/1,000 = $17.60. b.Expected NAV = (400 × $20 + 400 × $14)/1,000 = $13,600/1,000 = $13.60, or a decline of 22.73%. c.[(400 × $20) + (400 × PM)]/1,000 = $17.60, implies that PM = $24, a decrease of $4.
See picture City Bank has estimated that its average daily net transaction accounts balance over the recent 14-day computation period was $251.00 million. The average daily balance with the Fed over the 14-day maintenance period was $8.5 million, and the average daily balance of vault cash over the two-week computation period was $8 million. a. Under the rules effective in 2020, what is the amount of average daily reserves required to be held during the reserve maintenance period for these demand deposit balances?b. What is the average daily balance of reserves held by the bank over the maintenance period? By what amount were the average reserves held higher or lower than the required reserves?c. If the bank had transferred $21 million of its deposits every Friday over the two-week computation period to one of its off-shore facilities, what would be the revised average daily reserve requirement?
a.Reserve requirements = (0 × $15.2 million) + ($110.2 million − $15.2 million) (0.03) + ($251.00 million − $110.2 million) (0.10)= 0 + $2.850 million + $14.08 million = $16.930 million After subtracting the average daily balance of vault cash of $8 million, the bank needs to maintain a daily average of $8.930 million ($16.930 million − $8 million) during the maintenance period. b.The average daily balance over the maintenance period was $8.5 million. Therefore, average reserves held were short $0.430 million. c.For the 14-day period, the cumulative sum of its daily average net transaction accounts is = $251.00 million × 14 = $3,514 million. If $21 million is transferred on Friday, the total reduction is $126 million over two weekends ($21 million × 3 days × 2 weekends), and the total 14-day balance is $3,388 million. The average daily deposits will be $242 million. Reserve requirements = (0 × $15.2 million) + ($110.2 million − $15.2 million) (0.03) + ($242 million − $110.2 million) (0.10) = 0 + $2.850 million + $13.18 million = $16.030 million. City Bank needs to maintain average reserves of $8.030 million ($16.030 million − $8 million) during the maintenance period. Since it had $8.5 million of reserves, a surplus of $0.470 million per day would now exist.
At the beginning of the year, you purchased a share of stock for $35. Over the year the dividends paid on the stock were $2.75 per share. a. Calculate the return if the price of the stock at the end of the year is $30. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))b. Calculate the return if the price of the stock at the end of the year is $40.
a.Return = $2.75/$35.00 + (($30.00 − $35.00)/$35.00) = −6.43% b.Return = $2.75/$35.00 + (($40.00 − $35.00)/$35.00) = 22.14%
A bundle of goods in Japan costs ¥2,698,100 while the same goods and services cost $25,200 in the United States. a. If purchasing power parity holds, what is the current exchange rate of U.S. dollars for yen? b. If, over the next year, inflation is 6 percent in Japan and 10 percent in the United States, what will the goods cost next year? c. Will the dollar depreciate or appreciate relative to the yen over this time period?
a.The current exchange rate is $25,200/¥2,698,100 or $0.0093/¥1. b. & c. Next year, the Japanese goods will cost ¥2,859,986, and likewise the U.S. goods will cost $27,720. The new implied exchange rate is $27,720/¥2,859,986 = $0.0097/¥. Thus, the dollar will depreciate because the U.S. inflation rate is greater than the Japanese inflation rate.
You have taken a long position in a call option on IBM common stock. The option has an exercise price of $144 and IBM's stock currently trades at $148. The option premium is $6 per contract. a. How much of the option premium is due to intrinsic value versus time value?b. What is your net profit on the option if IBM's stock price increases to $158 at expiration of the option and you exercise the option?c. What is your net profit if IBM's stock price decreases to $138?
a.The intrinsic value of the option is $4 = ($148 − $144). Thus, the time value of the option is $2 = ($6 − $4). b.Total profit = ($158 − $144) − $6 = $8 per share. c.If the price of the underlying stock is $138 (less than the exercise price), you will not exercise the option. Thus, your profit is −$6 per share (the cost of the option).
Refer to Table 9-1. a. What was the spot exchange rate of Vietnam dong for U.S. dollars (USD/VND) on March 13, 2020? (Round your answer to 4 decimal places. (e.g., 32.1616))b. What was the three-month forward exchange rate of Swiss Franc for U.S. dollars (USD/CHF) on March 13, 2020? (Round your answer to 4 decimal places. (e.g., 32.1616))c. What was the three-month forward exchange rate of U.S. dollars for Swiss Franc (CHF/USD) on March 13, 2020? (Round your answer to 5 decimal places. (e.g., 32.16161))
a.The spot exchange rate of Vietnam dong for U.S. dollars (USD/VND) was VND23,211.0000/US$1 on March 13, 2020. b.The 3-month forward exchange rate of Swiss Franc for U.S. dollars (USD/CHF) was CHF0.9491/US$1 on March 13, 2020. c.The 3-month forward exchange rate of U.S. dollars for Swiss Franc (CHF/USD) was $1.05360/CHF1 on March 13, 2020.
The application of computational tools to address tasks traditionally requiring human sophistication is broadly termed:
artificial intelligence
The largest asset category of life insurers is _______________ and the largest liability category is ___________.
bonds; policy reserves
Bitcoin and other digital currencies are underpinned by ______ technology, which is an electronic ledger or database that records and verifies transactions made using the currency.
distributed ledger
All else held constant, if the Fed was targeting the quantity of money supplied and money demand dropped, the Fed would likely ______________. If the Fed was instead targeting interest rates and money demand dropped, the Fed would likely _______________.
do nothing; decrease the money supply
Financial institutions generally do not face liquidity risk.
false
The Financial Stability Board defines fintech as "technology-enabled innovation in financial services that could result in new business models, applications, processes or products with an associated ________ effect on the provision of financial services." Multiple Choice
material
Citibank holds $30 million in foreign exchange assets and $25 million in foreign exchange liabilities. Citibank also conducted foreign currency trading activity in which it bought $7 million in foreign exchange contracts and sold $15 million in foreign exchange contracts. a. What is Citibank's net foreign assets? (Enter your answer in millions.)b. What is Citibank's net foreign exchange bought? (Enter your answer in millions. Negative amount should be indicated by a minus sign.)c. What is Citibank's net foreign exposure? (Enter your answer in millions. Negative amount should be indicated by a minus sign.)
net foreign exposure i = (FX assetsi − FX liabilitiesi) + (FX boughti − FX soldi) = Net foreign assetsi + Net FX boughti a.Thus, for Citibank, net foreign assets = $30 million − $25 million = $5 million. b.Citibank's net foreign exchange bought = $7 million − $15 million = −$8 million. c.Citibank's net foreign exposure = $5 million + (−$8 million) = −$3 million.
The primary policy tool used by the Fed to meet its monetary policy goals is:
open market operations.
Under ERISA, pension fund managers are required to invest fund assets as wisely as if they were investing their own money. This requirement is called the:
prudent person rule.
Money market mutual funds (MMMFs) have caused disintermediation at banks at times. This is because MMMFs:
sometimes pay higher interest rates than bank deposits.
In property and casualty insurance the combined ratio is equal to ______________________ divided by total premiums written.
the sum of the loss ratio plus the expense ratio
A corporate borrower failing to repay a loan on time due to equipment breakdowns is an example of firm specific credit risk.
true
A fintech charter is a special-purpose bank charter for non-bank fintech companies to operate in the banking system providing preemption from many state laws. Group startsTrue or False
true
Credit unions are not taxed and, as a result, well-run credit unions are often able to charge lower loan rates and pay slightly higher deposit rates than banks.
true
