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Q:
The greater the compounding frequency, the higher the present value, everything else the same.
Q:
The greater the compounding frequency, the higher the future value, everything else the same.
Q:
The effective annual interest rate will never be less than the simple interest rate.
Q:
All other things the same, longer maturity bonds have greater relative price volatility than shorter maturity bonds.
Q:
For a given absolute change in interest rates, the percentage increase in an option free bond's price will be less than the percentage decrease.
Q:
All other things the same, low coupon bonds have greater relative price volatility than high coupon bonds.
Q:
Bond prices and interest rates move in the same direction.
Q:
Which of the following are sources of a bond's total return?a. Coupon interestb. Reinvestment incomec. Capital gains or losses realize at maturityd. All of the above are sources of a bond's total returne. a. and c. only
Q:
A bank buys a $10,000 Treasury bill with a maturity of 1 year. Current market rates are 8%. If interest rates rise to 8.25%, what is the approximate change in the price of the T-bill?
a. -0.02%
b. -0.23%
c. -2.31%
d. -23.15%
e. -231.15%
Q:
A stripped security:
a. pays no interest.
b. has no par value.
c. is easier to value than a traditional bond.
d. should sell as a package of zero coupon bonds.
e. None of the above
Q:
A 90-day Treasury bill is quoted as having a 6% bond equivalent yield. What is the effective annual yield?
a. 6.00%
b. 6.14%
c. 6.23%
d. 6.62%
e. 6.79%
Q:
A 90-day Treasury bill is quoted as having a price of $987.50. What is its bond equivalent yield?
a. 5.00%
b. 5.13%
c. 5.23%
d. 5.62%
e. 5.79%
Q:
A bond's Macaulay duration is 95 years. If the current annual interest rate is 7%, what is the modified duration of this bond?
a. 7.00 years
b. 7.88 years
c. 7.43 years
d. 7.95 years
e. 8.51 years
Q:
Everything else the same, if the yield to maturity decreased 1 percentage point, which of the following bonds would have the largest percentage increase in value?
a. A 25-year 11% coupon bond.
b. A 25-year 7.5% coupon bond.
c. A 25-year zero-coupon bond.
d. A 3-year zero coupon bond.
e. A 3-year bond with a 7.5% coupon.
Q:
Which of the following is false?
a. As interest rates rise, bond prices rise, everything else the same.
b. Given an absolute change in interest rates, the percentage increase in a bond's price will be greater than the percentage decrease, everything else the same.
c. Long-term bonds change proportionately more in price than short-term bonds for a given rate change, everything else the same.
d. A bond with a lower coupon will change more in price than a bond with a higher coupon, everything else the same.
e. A bond's duration is a measure of its price elasticity.
Q:
A bond that with a 12% coupon rate (paid semi-annually) has two years to maturity. If the current discount rate is 10%, what is the bond's Macaulay's duration?
a. 4.00 years
b. 3.47 years
c. 2.00 years
d. 1.73 years
e. 1.50 years
Q:
A bond that has an annual coupon rate of 11% has three years to maturity. If the current discount rate is 16%, what is the bond's Macaulay's duration?
a. 3.00 years
b. 2.991. years
c. 2.89 years
d. 2.79 years
e. 2.69 years
Q:
A bond that has an annual coupon rate of 15% has two years to maturity. If the current discount rate is 8%, what is the bond's Macaulay's duration?
a. 2.00 years
b. 1.99 years
c. 1.88 years
d. 1.77 years
e. 1.66 years
Q:
What is the Macaulay's duration of a 10 year zero-coupon bond with a face value of $1,000 and a market rate of 8%, compounded annually is:
a. 10 years
b. 11 years
c. 12 years
d. 13 years
e. None of the above
Q:
The Macaulay's duration of a 10-year, 10% bond with a face value of $1,000 and a market rate of 8%, compounded annually is:
a. 10 years
b. 11 years
c. 12 years
d. 13 years
e. None of the above
Q:
Duration:
a. is always greater than maturity.
b. rises as the coupon payment rises.
c. measures how bond prices change with changes in maturity.
d. is a measure of total return.
e. is a measure of how price sensitive a bond is to a change in interest rates.
Q:
What is the market value of a zero coupon bond with a face value of $1,000 and 20 years to maturity, assuming an annual discount rate of 7%?
a. $100.00
b. $258.42
c. $502.57
d. $1,000.00
e. None of the above
Q:
Assuming an 8% return, compounded semi-annually, what is the market value of a 12% coupon bond with three years to maturity?
a. $1,000.00
b. $1,104.84
c. $1,419.68
d. $1,809.35
e. $2,000.00
Q:
You purchase a 10-year bond at face value for $1,000. It pays a semi-annual coupon payment of $50. If you can reinvest the coupon payments at 8% annually, what is your expected total return?
a. 5.73%
b. 6.63%
c. 7.53%
d. 8.43%
e. 9.33%
Q:
In January, you purchased a 14% semi-annual coupon bond ($1,0000 par) that had a remaining maturity of five years for $827.95. Six months later, immediately following an interest payment, you sold the bond. At the time of the sale, interest rates were 10%. What was your return?
a. 7.1%
b. 38.2%
c. 46.4%
d. 146.4%
e. 296.3%
Q:
A bond with a par value of $1,000 and a 13% semi-annual coupon rate has 20 years to maturity. Assuming it is priced to yield 10%, compounded semi-annually, what is the market value of the bond, to the nearest dollar?
a. $1,187
b. $1,107
c. $1,257
d. $2,373
e. None of the above
Q:
A bond with a par value of $1,000 and a 10% semi-annual coupon rate has 9 years to maturity. Assuming it is priced to yield 8%, compounded semi-annually, what is the market price of the bond, to the nearest dollar?
a. $1,074
b. $1,127
c. $1,450
d. $1,510
e. None of the above
Q:
A bank quotes you an effective annual rate of 10% on a semi-annual investment. What is the annual simple interest rate?
a. 9.76%
b. 10.00%
c. 10.25%
d. 10.79%
e. 10.96%
Q:
A bank quotes you a rate of 7% on a CD, compounded quarterly. What is the effective annual rate?
a. 6.79%
b. 6.81%
c. 6.87%
d. 7.13%
e. 7.19%
Q:
What is the effective annual cost of a credit card that charges 18%, compounded monthly?
a. 16.63%
b. 18.00%
c. 18.81%
d. 19.56%
e. 19.61%
Q:
What is the effective annual rate of an investment that offers 8%, compounded quarterly?
a. 8.00%
b. 8.16%
c. 8.24%
d. 8.32%
e. 8.64%
Q:
At what annual interest rate will you double your money if you invest for 8 years?a. 10.11%b. 9.05%c. 8.19%d. 7.91%e. 6.73%
Q:
You invested $10,000 ten years ago. During the first two years, you earned 9% per year and during the last eight years, you earned 12% per year. To the nearest dollar, how much is your investment worth today?
a. $25,937
b. $29,417
c. $37,014
d. $40,456
e. None of the above
Q:
If you invested $200 today, another $400 in one year, and another $600 in two years, how much will your investment be worth (to the nearest dollar) in five years, assuming a 7% annual compound return?
a. $1,540
b. $600
c. $720
d. $770
e. None of the above
Q:
How long will it take you to double your money if you can invest at 7.2% per year?
a. 9.97 years
b. 9.28 years
c. 8.62 years
d. 7.21 years
e. 6.98 years
Q:
If you invested $700 today and another $1,000 in two years, to the nearest dollar, how much will your investment be worth in seven years.? Assume an 8.4% annual compound return.
a. $616
b. $749
c. $1,364
d. $2,728
e. None of the above
Q:
To the nearest dollar, what is the value today of an investment that pays $1,000,000 in 15 years, assuming an annual opportunity cost of 8%?
a. $555,265
b. $315,242
c. $463,193
d. $3,238,387
e. None of the above
Q:
To the nearest dollar, what is the value today of an investment that pays $10,000 in five years, assuming an annual opportunity cost of 6%?
a. $7,473
b. $11,592
c. $8,626
d. $7,130
e. None of the above
Q:
To the nearest dollar, what is the value today of an investment that pays $15,000 in seven years, assuming an annual opportunity cost of 9%?
a. $7,473
b. $27,421
c. $8,206
d. $7,130
e. None of the above
Q:
If a bond is selling at par value, then:
a. the yield to maturity is less than the coupon rate.
b. the yield to maturity is greater than the coupon rate.
c. the yield to maturity is equal to the coupon rate.
d. its duration must be greater than its maturity.
e. its duration must be equal to its maturity.
Q:
If a bond is selling at a premium, then:
a. the yield to maturity is less than the coupon rate.
b. the yield to maturity is greater than the coupon rate.
c. the yield to maturity is equal to the coupon rate.
d. its duration must be greater than its maturity.
e. its duration must be equal to its maturity.
Q:
If a bond is selling at a discount, then:
a. the yield to maturity is less than the coupon rate.
b. the yield to maturity is greater than the coupon rate.
c. the yield to maturity is equal to the coupon rate.
d. its duration must be greater than its maturity.
e. its duration must be equal to its maturity.
Q:
Under FASB 157, Level _______ assets valuation are based on management's best judgment of what the underlying asset is worth.
a. 1
b. 2
c. 3
d. 4
e. 5
Q:
Under FASB 157, Level _______ assets valuation are based on observable market prices for similar assets or liabilities.
a. 1
b. 2
c. 3
d. 4
e. 5
Q:
Under FASB 157, Level _______ assets valuation are based on observable market prices for the identical instrument.
a. 1
b. 2
c. 3
d. 4
e. 5
Q:
Goldman Sachs listed all of the following key risk faced by the firm in its 2007 annual report except:
a. widening credit spreads..
b. an increase in the number of securities underwritings.
c. declines in equity values.
d. declines in the number of mergers and acquisitions.
e. an increase in market volatility.
Q:
______________ represent amounts owed by Goldman Sachs to brokers, the firm's customers, and counter-parties to derivative contracts.
a. collateralized agreements
b. financial instruments
c. collateralized financings
d. receivables
e. payables
Q:
______________ represent amounts owed to Goldman Sachs by brokers, the firm's customers, and counter-parties to derivative contracts.
a. collateralized agreements
b. financial instruments
c. collateralized financings
d. receivables
e. payables
Q:
On Goldman Sachs' balance sheet for 2007, ___________ consist of securities that Goldman Sachs has borrowed under an agreement to resell at a later date.a. collateralized agreementsb. financial instrumentsc. collateralized financingsd. receivablese. payables
Q:
On Goldman Sachs' balance sheet for 2007, ___________ consist of securities that Goldman Sachs has loaned under an agreement to repurchase at a later date.
a. collateralized agreements
b. financial instruments
c. collateralized financings
d. receivables
e. payables
Q:
On Goldman Sachs' balance sheet for 2007, Financial Instruments Owned consists of:
a. cash.
b. collateralized agreements.
c. derivative securities.
d. a. and b.
e. a. and c.
Q:
A __________ is an investment fund that is limited to a small number of sophisticated investors.
a. money market mutual fund
b. private equity fund
c. risk management fund
d. hedge fund
e. market development fund
Q:
When an investment bank commits its own funds to take a risk position in an underlying security, it is known as:
a. underwriting.
b. market making.
c. proprietary trading.
d. organizing a market.
e. brokering.
Q:
When an investment bank stands willing to buy securities from participants who want to sell and to sell securities to participants who want to buy, it is:
a. underwriting.
b. market making.
c. principal investing.
d. proprietary trading.
e. organizing a market.
Q:
Which of the following investment banking services would be classified as Advisory Services?
a. Managing investments for governments.
b. Designing an initial public offering
c. Acting as a broker that facilitates security trading
d. Running a hedge fund
e. Proprietary trading
Q:
During the underwriting process, the investment bank receives payment for all of the following except:
a. flotation costs.
b. legal costs.
c. Federal Reserve costs.
d. accounting costs.
e. marketing costs.
Q:
The underwriting process involves all of the following except:
a. helping a firm design a security to meet all legal requirements.
b. identifying potential buyers.
c. pricing the security.
d. selling the security to the market place.
e. All of the above are part of the underwriting process.
Q:
If a firm already has stock outstanding that is publically traded, additional offerings are called:.
a. initial public offering.
b. second time equity offering.
c. primary offering.
d. secondary offering.
e. flavored offering.
Q:
If a security is a first-time placement for a firm, it is called a(n):
a. initial public offering.
b. first time equity offering.
c. primary offering.
d. secondary offering.
e. seasoned offering.
Q:
Investment banks generally engage in all of the following types of business activities except:
a. proprietary trading.
b. goodwill recovery.
c. market making.
d. securities underwriting..
e. advisory services
Q:
BMW Financial Services is owned by BMW Bank.
Q:
BMW bank has more financial leverage than its peers.
Q:
Mutual of Omaha's business model is to combine insurance and banking activities.
Q:
Goldman Sachs has converted from an investment bank to a bank holding company.
Q:
Mortgage origination makes up the largest portion of Goldman Sachs' business.
Q:
Today, most industrial loan companies are located in Indiana .
Q:
"Hot money" represents Goldman Sachs' greatest credit risk..
Q:
Net interest income made up a significant portion of Goldman Sachs' net revenue in 2007.
Q:
When an investment bank acts as a broker, it does not take ownership of the underlying security.
Q:
Investment banks are prohibited from making a market in the stock of publically traded companies.
Q:
Which of the following is not a criticism against granting commerce companies industrial loan company charters?
a. There should be a separation between commerce and banking to protect customers from potential conflicts of interest.
b. Firms could become so large and powerful that they might dominate business in many communities.
c. Industrial loan companies are not subject to the same regulations as commercial banks.
d. All of the above are criticisms against granting commerce companies industrial loan company charters
e. a. and b. only
Q:
Historically, most industrial loan companies have operated to:
a. accept deposits.
b. assist their parent company in some facet of the firm's core business.
c. exclusively make commercial loans.
d. increase the safety and soundness of the parent company.
e. purchase municipal securities.
Q:
BMW Bank is chartered by the:
a. state of Utah.
b. FDIC.
c. Federal Reserve.
d. Office of the Comptroller of the Currency.
e. National Credit Union Administration.
Q:
Mutual of Omaha bank is charted as a:
a. commercial bank.
b. consumer bank.
c. mutual savings bank.
d. thrift.
e. credit union.
Q:
Under FASB 157, the valuation of Level 3 assets is labeled:
a. marking to market.
b. marking to matrix.
c. marking to myth.
d. marking to major.
e. marking to minor.
Q:
Under FASB 157, the valuation of Level 2 assets is labeled:
a. marking to market.
b. marking to matrix.
c. marking to myth.
d. marking to major.
e. marking to minor.
Q:
Under FASB 157, the valuation of Level 1 assets is labeled:
a. marking to market.
b. marking to matrix.
c. marking to myth.
d. marking to major.
e. marking to minor.
Q:
There is no systematic link between a bank's market value of equity and reported expenses.
Q:
Community banks relied more on investment banking, relative to larger banks, to increase non-interest income.
Q:
Larger banks have lower efficiency ratios, on average, than smaller banks.