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| 1. (TCO A) 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) _____. (Points : 10)
asset transformer asset broker government regulator foreign service representative |
| 2. (TCO A) An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state, and local tax rate of 6%, what was the investor’s actual real after tax rate of return? (Points : 10)
-0.36% 0.66% 0.72% 1.45% 2.64%
=0.04 * [1 – (0.28 + 0.06)] – 0.03 = -.36% |
| 3. (TCO B) The required rate of return on a bond is (Points : 10)
the interest rate that equates the current market price of the bond with the present value of all future cash flows received. equivalent to the current yield for non par bonds. less than the ERR for discount bonds and greater than the ERR for premium bonds. inversely related to a bond’s risk and coupon. None of the above |
| 4. (TCO B) Convexity arises because(Points : 10)
bond’s pay interest semiannually. coupon changes are the opposite sign of interest rate changes. duration is an increasing function of maturity. present values are a nonlinear function of interest rates. duration increases at higher interest rates. |
| 5. (TCO B) Bank A has an increase in deposits of $20 million dollars and all bank reserve requirements are 10%. Bank A loans out the full amount of the deposit increase that is allowed. This amount winds up deposited in Bank B. Bank B lends out the full amount possible as well, and this amount winds up deposited in Bank C. What is the total increase in deposits resulting from these three banks? (Points : 10)
$48.00 million $54.20 million $56.33 million $57.10 million $60.00 million |
| 6. (TCO B) Recently, oil prices have risen in the U.S., generating concerns that inflation may increase. If the Fed wishes to ensure that inflation does not get out of hand, they could (Points : 10)
intervene in the currency markets to push the value of the dollar down. decrease the discount rate. lower the target fed funds rate. lower the target money supply growth rate. reduce reserve requirements at banks. |
| 7. (TCO C) A municipal bond is paying a 6% annual yield. An equivalent risk corporate bond is paying 7%. Investors with a tax rate of _____, or higher would prefer the municipal bond. (Points : 10)
65.13% 14.28% 25.00% 80.75% 25.75% |
| 8. (TCO C) Loans past due 90 days or more, and loans that are not accruing interest because of problems of the borrower are called _____. (Points : 10)
loan losses net charge-offs provisional loans noncurrent loans contra loans |
| 9. (TCO C) A construction firm cannot obtain the necessary permits to begin building a shopping mall until it can show it either has or will have the necessary funding to complete the project. The firm may ask a bank for which of the following to allow it to obtain the permits? I. Commercial letter of credit II. Loan commitment III. Credit line IV. Repurchase agreement (Points : 10)
I or II II or III II or IV III or IV I or IV |
| 10. (TCO C) The reduction in deposit funds cost to an individual bank brought about by government insurance is an example of the _____. (Points : 10)
social benefit of regulation private cost of regulation to DIs private benefits of regulation to DIs net regulatory burden |
