FIN 480 Final Exam Questions
"To-big-to-fail" banks are a _____ problem because the banks have an incentive to _____
the riskiness of their activities.
-Adverse Selection
-Moral Hazard
-A Principal-agent problem
-Bank regulations - correct answer-Moral Hazard
10-year TIPS are yielding 2.3% while 10-year treasury bonds are yielding 4.9%. What is
"expected inflation"? - correct answer-2.6%
A "death spiral" is always a potential problem in markets with a
-Moral hazard problem
-Adverse selection problem
-A lot of really sick people
-A lot of bad cars (lemons)
-All of the above - correct answer-Adverse selection problem
A "lender of last resort" is
-A bank that people with bad credit can borrow from
-A large bank that lends to other banks
-The Federal Reserve in the U.S.
-Another name for being able to borrow from your parents - correct answer-The Federal
Reserve in the U.S.
A $1,000 face value bond purchased for $965.00, with an annual coupon of $60, and 20
years to maturity has a:
-current yield equal to 6.22%.
-current yield equal to 6.00%.
-coupon rate equal to 6.22%.
-coupon rate equal to 6.00%. - correct answer-coupon rate equal to 6.22%.
A $1000 face value purchased for $975.00, with an annual coupon of $50, and 20 years to
maturity has a current yield equal to: - correct answer-5.13%
,A 1 year bond has ______ than a 20-year bond - correct answer-Less interest risk
A 20-year bond has _____ than a 10-year bond - correct answer-More interest risk
A bank has a lot of bonds held as assets, as interest rates rise, this will tend to ______ the
bank's ______
-Increase; assets
-Decrease; assets
-Increase; capital
-Decrease; liabilities
-None of the Above - correct answer-Decrease; assets
A bank has a lot of bonds held as assets, as interest rates rise, this will tend to ______ the
bank's ______
-Increase; assets
-Reduce; liabilities
-Increase; capital
-Increase; liabilities
-None of the Above - correct answer-None of the Above
A bank has profits of $1000 with a capital base of $1000 and a debt to equity ratio of 4. The
bank has a ROA of _____
-10%
-15%
-20%
-25%
-None of the Above - correct answer-20%
A bank has profits of $1000 with a capital base of $1000 and a debt to equity ratio of 5. The
bank has a ROA of _____
-10%
-15%
-20%
-25%
-None of the Above - correct answer-None of the Above
A bank has two types of assets, risk-free cash and risky loans. The bank regulator assigns a
risk weight of either 0 or 1 to assets. Suppose this bank has $1000 of cash and $9000 of
loans and tier 1 capital = $500. What is the bank's capital adequacy ratio?
-5%
-5.55%
-6%
, -50%
-None of the above? - correct answer-5.55%
A bank has two types of assets, risk-free cash and risky loans. The bank regulator assigns a
risk weight of either 0 or 1 to assets. Suppose this bank has $1000 of cash and $9000 of
loans and tier 1 capital = $500. What is the leverage ratio?
-5%
-5.55%
-6%
-50%
-None of the above? - correct answer-5%
A bank has two types of assets, risk-free cash and risky loans. The regulator assigns a risk
weight of either 0 or 1 to assets. Suppose this bank has $100 of cash and $200 of loans and
tier 1 capital = $10. What is its capital adequacy ratio?
-3.33%
-5%
-10%
-12%
-None of the above - correct answer-5%
A bank has two types of assets, risk-free cash and risky loans. The regulator assigns a risk
weight of either 0 or 1 to assets. Suppose this bank has $100 of cash and $200 of loans and
tier 1 capital = $10. What is its leverage ratio?
-3.33%
-5%
-10%
-12%
-None of the above - correct answer-5%
A bank leads existing cash as a mortgage, this mortgage is _____ to the bank
-An increase in assets
-An increase in equity
-A decrease in liabilities
-A decrease in assets
-None of the above - correct answer-None of the above
A bank leads existing cash as a mortgage, this mortgage is _____ to the bank
-An increase in assets
-Composition in assets
-A decrease in liabilities
-Composition in liabilities
-None of the above - correct answer-Composition in assets
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