Q&A Hero

Q: Given the following data: Sales = 3200; Cost of good sold = 1600; Average receivables = 200, calculate the average collection period: A. 24.3 B. 22.8 C. 137 D. None of the above

Q: A Fed Funds loan that is an unwritten agreement negotiated via wire or telephone with the borrowed funds returned the next day is known as: A) An overnight loan B) A continuing contract C) A term loan D) A daytime loan E) None of the above

Q: Given the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets = 1600; Average inventory = 200, calculate the days in inventory: A. 18.3 B. 45.6 C. 22.8 D. None of the above

Q: When a foreign branch lends a Eurodeposit to its home office in the U.S., how is this listed on the balance sheet of the home office? A) Loan from Subsidiary B) Liabilities to Foreign Branches C) Securities Sold under Agreement to Repurchase D) Bankers Acceptance E) None of the above

Q: Given the following data: Sales = 3200; Cost of goods sold = 1600; Average total assets = 1600; Average inventory = 200, calculate the asset turnover ratio: A. 2.0 B. 0.9375 C. 1.33 D. None of the above

Q: CDs issued by savings institutions are called: A) Thrift CDs B) Domestic CDs C) Euro CDs D) Yankee CDs E) Variable rate CDs

Q: Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the cash ratio: (assume that the firm has no marketable securities) A. 0.4 B. 2.0 C. 1.5 D. None of the above

Q: The Lawrence Bank of Cleveland is planning on issuing $60 million in negotiable CDs. Currently other similar CDs have an interest rate of 5.15%. The Lawrence Bank of Cleveland has estimated that is noninterest costs of issuing these CDs will be .2%. The Lawrence Bank of Cleveland must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $50 of the funds raised will be full invested. What is the effective cost rate for the Lawrence Bank of Cleveland to borrow in the CD market? (Round your answer to the nearest .01%) A) 6.71% B) 6.42% C) 5.58% D) 5.15% E) None of the above

Q: Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the quick ratio: A. 1.0 B. 2.0 C. 1.2 D. None of the above

Q: The Bank of Boulder is planning on issuing $45 million in negotiable CDs. Currently other similar CDs have an interest rate of 4.75%. The Bank of Boulder has estimated that its noninterest costs of issuing these CDs are .15%. The Bank of Boulder must pay a deposit insurance premium of .0023 per dollar of insured funds. Due to other immediate cash needs, only $40 million of the funds raised will be fully invested. What is the effective cost rate for the Bank of Boulder to borrow in the CD market? (Round your answer to the nearest .01%) A) 4.75% B) 4.90% C) 5.10% D) 5.79% E) None of the above

Q: Given the following data: Current assets = 500; Current liabilities = 250; Inventory = 200; Account receivables = 200; calculate the current ratio: A. 2.0 B. 1.0 C. 1.5 D. None of the above

Q: Bank of America is concerned because they have heard that the Federal Reserve Board may impose legal reserve requirements on money borrowed in the Fed Funds market. Which factor that affects a banks use of nondeposit sources of funds is this bank concerned about? A) The relative cost of raising the funds B) The length of time the funds will be required C) The risk associated with each source of funds D) The size of the bank E) Regulations

Q: Which of the following is an example of liquidity ratios? A. Times interest earned (TIE) B. P/E ratio C. Return on equity D. Quick ratio

Q: The First State Bank of Summerville needs to raise $500,000 in nondeposit sources of funds. They know that the Eurodollar market requires a minimum denomination of $1 million. What factor that affects a banks use of nondeposit sources of funds is this bank concerned about? A) The relative cost of raising the funds B) The length of time the funds will be required C) The risk associated with each source of funds D) The size of the bank E) Regulations

Q: Given the following data: EBIT = 100; Depreciation = 40; Interest = 20; Dividends = 10; calculate the Times Interest Earned (TIE) ratio. A. 7.0 B. 5.0 C. 4.7 D. 14.0

Q: The manager of the First National Bank of Edmond needs $100 million this afternoon to satisfy an unexpected loan demand from an excellent customer of the bank. What factor that affects a banks use of nondeposit sources of funds is the manager concerned about? A) The relative cost of raising the funds B) The length of time the funds will be required C) The risk associated with each source of funds D) The size of the bank E) Regulations

Q: Given the following data: Long term debt = 100; Value of leases = 20; Book value of equity = 80; Market value of equity = 100, calculate the debt-equity ratio. A. 0.50 B. 0.60 C. 1.50 D. 1.0

Q: The First State Bank of Summerville knows that, if they issue a large amount of the negotiable CD, money is tight. As a result, they choose to ration the credit and lend only to their most loyal clients. What risk factor that affects a banks use of nondeposit sources of funds is the concern here? A) Interest rate changes B) The length of time the funds will be required C) The relative cost of raising the funds D) Credit availability E) Regulations

Q: Given the following data: Long term debt = 100; Value of leases = 20; Book value of equity = 80; Market value of equity = 100, calculate the debt ratio. A. 0.56 B. 0.50 C. 0.55 D. 0.60

Q: The First State Bank of Summerville knows that, if they issue commercial paper through a subsidiary, money is very tight and the interest rate on the commercial paper may very high. What factor that affects a banks use of nondeposit sources of funds is the bank concerned about? A) The relative cost of raising the funds B) The length of time the funds will be required C) The risk associated with each source of funds D) The size of the bank E) Regulations

Q: Which of the following is an example of leverage ratios? A. Debt-Equity ratio B. Quick ratio C. Payout ratio D. Return on equity

Q: The Willis Savings Bank is comparing the prevailing interest rate in the Fed Funds market with that in the negotiable CD market. They are making sure to include the noninterest costs and the deposit insurance costs as well as the amount of money that will actually be available for new loans. Which factor that affects a banks use of nondeposit sources of funds is the bank examining? A) The relative cost of raising the funds B) The length of time the funds will be required C) The risk associated with each source of funds D) The size of the bank E) Regulations

Q: If the debt ratio is 0.5 what is the debt-equity ratio? (assume no leases) A. 0.5 B. 1.0 C. 2.0 D. 4.0

Q: The Williams National Bank has new loan requests of $585 million and wants to purchase $160 in U.S. Treasury securities. They also anticipate draws on lines of credit in the amount of $120 million. This bank received deposits totaling $300 million and they expect to bring in an additional $340 million in deposits next week. What is the estimated funds gap of the Williams National Bank? A) $225 million B) $585 million C) $640 million D) $865 million E) None of the above

Q: Total sources of funds are calculated as: A. operating cash flows + new issues of equity B. operating cash flows + new issues of equity + new issues of long-term debt C. operating cash flows + new issues of equity-new issues of long-term debt D. operating cash flows + new issues of equity-dividend paid to shareholders

Q: The Bridges State Bank has new loan requests of $315 and wants to purchase $125 million in U.S. Treasury securities and anticipates draws on lines of credit in the amount of $65 million. Deposits received today totaling $205 million and the bank expects to bring in an additional $185 million in deposits next week. What is the estimated funds gap for the Bridges State Bank? A) $505 million B) $390 million C) $115 million D) $315 million E) None of the above

Q: Total uses of funds are calculated as: A. investments in net working capital + investments in fixed assets B. investments in fixed assets + dividend paid to shareholders C. investments in net working capital + investments in fixed assets + dividend paid to shareholders D. investments in net working capital + investments in fixed assets-dividend paid to shareholders

Q: Earnings before interest and taxes is calculated as: A. Total revenues-costs B. Total revenues-costs-depreciation C. Total revenues-costs-depreciation-taxes D. None of the above

Q: In addition to the Federal Reserve, another governmental agency has also been loaning large amounts of money to banks and thrift institutions and is known as the: A) FDIC B) OCC C) OTS D) FHLB E) RTC

Q: Net working capital (NWC) is calculated as: A. Total assets-total liabilities B. Current assets + current liabilities C. Current assets-current liabilities D. None of the above

Q: The following types of loans are all available at the discount window except: A) Adjustment credit B) Primary credit C) Secondary credit D) Seasonal credit E) None of the above

Q: The difference between Current Assets of a firm and its Current Liabilities is called. A. Net worth B. Net working capital C. Gross working capital D. None of the above

Q: A conventional Repurchase Agreement (RP) is ________ flexible for the borrower than (as) a General Collateral Finance RP. A) More B) Less C) As D) Unknown E) None of the above

Q: Inventory consists of: A. finished goods B. raw material and finished goods C. raw material, work in process, and finished goods D. none of the above

Q: A repurchase agreement (RP) in which the collateral is specifically identified is known as: A) A conventional RP B) A General Collateral Finance RP C) A specific RP D) A general RP E) An individual RP

Q: Dollar denominated CDs issued by banks outside the United States are known as: A) Domestic CDs B) Euro CDs C) Yankee CDs D) Commercial paper E) None of the above

Q: The difference between Total Assets of a firm and its Total Liabilities is called. A. Net working capital B. Net current assets C. Net worth D. None of the above

Q: Suppose a bank expects to issue 45 day negotiable CDs for $150 million. The interest rate on these CDs is 6.35%. What is the dollar amount in interest the bank will owe on these CDs at the end of the 45 days? A) $9,525,000 B) $1,190,625 C) $76,200,000 D) $6,750,000 E) None of the above

Q: The following are known as current assets: I) Cash II) Marketable securities III) Receivables IV) Inventories V) Payables A. I, II and III only B. I, II, III and IV only C. II, III, IV and V only D. III, IV and V only

Q: Which of the following is an example of a longer term nondeposit funding source? A) Federal funds B) Repurchase agreements C) Capital notes and debentures D) Negotiable CDs E) None of the above

Q: Assets are listed on the balance sheet in order of: I) Decreasing liquidity II) Decreasing size III) Increasing size IV) Relative life A. I only B. III and IV only C. II only D. IV only

Q: Which of the following is not an advantage of using a repurchase agreement? A) The bank gains excess reserves which can used to make new deposits B) The bank makes use of high-quality but low yielding assets without losing them permanently C) If the agreement is made with a bank who keeps a checkable deposit with the bank it can reduce both the bank's deposits and reserve requirements D) The interest rate the bank has to pay is usually low E) All of the above are advantages of using a repurchase agreement

Q: German laws and accounting procedures are designed, generally, to protect interests of the: A. Shareholders B. Managers C. Creditors D. Employees

Q: An agreement where one party agrees to sell T-bills to another party and at the same time agrees to buy them back at a set price is known as: A) A repurchase agreement B) Commercial paper C) Federal Funds D) Negotiable CDs E) None of the above

Q: In the U.S.A. and the U.K. laws and accounting procedures are designed, generally, to benefit the: A. Shareholders B. Managers C. Creditors D. Employees

Q: The TRC Bank is planning on raising $500 million in a new offering of commercial paper through its holding company. The plan on using $475 million of it to fund new loans. The current interest rate for similar commercial paper is 6.45 percent and they expect .25 percent in issuing costs. What is the effective rate of interest on this issue of commercial paper? A) 6.65% B) 6.45% C) 7.05% D) 6.79% E) None of the above

Q: The following groups are stakeholders of a public company: I) Shareholders II) The government III) Suppliers IV) Employees V) Bondholders VI) Management A. I and II only B. I, II, and III only C. I, II, III, and IV only D. I, II, III, IV, V, and VI

Q: The short-term notes, with maturities ranging from 3 or 4 days to 9 months, issued by well known companies are known as: A) Negotiable CDs B) Commercial paper C) Federal funds D) Repurchase agreements E) None of the above

Q: If the delta of a call option is 0.4 calculate the delta of an equivalent put option: A. 0.6 B. 0.4 C. -0.4 D. -0.6

Q: Suppose a bank promises an annual return of 6.5 percent on a three month (90 day) $150,000 CD) What will be the total amount due the customer at the end of the three month period? A) $152,437.50 B) $2,437.50 C) $150,000 D) $152,404.11 E) None of the above

Q: The delta of a put option is always equal to: A. The delta of an equivalent call option B. The delta of an equivalent call option with a negative sign C. The delta of an equivalent call option minus one D. None of the above

Q: A bank plans on borrowing $150 million through an RP transaction collateralized by T-bills. The bank plans on borrowing the money for 5 days and the current RP rate is 5.25 percent. What is this bank's total interest cost in dollars? A) $7,875,000 B) $107,877 C) $21,875 D) $109,375 E) None of the above

Q: Suppose VS's stock price is currently $20. In the next six months it will either fall to $10 or rise to $30. What is the current value of a put option with an exercise price of $15? The six-month risk-free interest rate is 5% (periodic rate). A. $5.00 B. $2.14 C. $0.86 D. $7.86

Q: The bank funding source that is really a "hybrid" account is the: A) Federal funds loan. B) Repurchase agreement. C) Negotiable CD. D) Eurodollar deposit. E) None of the above.

Q: What is the current value of a six-month call option with an exercise price of $15? The six-month risk-free interest rate (periodic rate) is 5%. [Use the replicating portfolio method] A. $8.73 B. $10.28 C. $16.88 D. $13.33

Q: The federal law that restricts Federal Reserve lending to undercapitalized banks and to banks that are "viable entities" is the: A) Riegle Community Development and Regulatory Improvement Act B) FDIC Improvement Act. C) Financial Institutions Reform, Recovery, and Enforcement Act. D) Depository Institutions Deregulation and Monetary Control Act. E) None of the above.

Q: What is the current value of a six-month call option with an exercise price of $12? The six-month risk-free interest rate (periodic rate) is 5%. [Use the risk-neutral valuation method] A. $9.78 B. $10.28 C. $16.88 D. $13.33

Q: Longer-term federal funds contracts lasting several days, weeks, or months, often accompanied by a written contract, are known as: A) Term loans. B) Continuing contracts C) Rollover loans. D) Federal funds mutuality agreements E) None of the above

Q: Suppose ACC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use the replicating portfolio method] A. $20.00 B. $8.57 C. $9.52 D. $13.10

Q: A federal funds loan that is automatically renewed each day unless either the borrower or the lender decides to end the loan agreement is known as a: A) Overnight loan. B) Continuing contract. C) Term loan. D) Rollover loan agreement E) None of the above

Q: Suppose ABC's stock price is currently $25. In the next six months it will either fall to $15 or rise to $40. What is the current value of a six-month call option with an exercise price of $20? The six-month risk-free interest rate is 5% (periodic rate). [Use the risk-neutral valuation method] A. $20.00 B. $8.57 C. $9.52 D. $13.10

Q: Accommodating banks perform what role? A) They act as intermediaries in the Eurodollar market. B) They issue negotiable CDs for themselves and for other banks. C) They sell commercial paper to raise funds for themselves and other firms belonging to their bank holding company. D) They buy and sell federal funds simultaneously in order to make a market for reserves of customer banks. E) None of the above.

Q: Suppose ABCD's stock price is currently $50. In the next six months it will either fall to $40 or rise to $80. What is the current value of a six-month call option with an exercise price of $50? The six-month risk-free interest rate is 2% (periodic rate). A. $2.40 B. $15.00 C. $8.25 D. $8.09

Q: CDs that are sold by the largest foreign banks through their U.S. branches are called: A) Thrift CDs. B) Domestic CDs. C) EuroCDs. D) Yankee CDs. E) None of the above.

Q: Suppose ABCD's stock price is currently $50. In the next six months it will either fall to $40 or rise to $60. What is the current value of a six-month call option with an exercise price of $50? The six-month risk-free interest rate is 2% (periodic rate). A. $5.39 B. $15.00 C. $8.25 D. $8.09

Q: First National Bank is planning to raise $30 million through an offering of negotiable CDs. The current rate for similar CDs is 5.5%. Noninterest cost rate for CDs is 0.25 percent. First National pays a deposit insurance premium of 0.0023 per dollar of insured deposits. Due to other immediate cash needs, only $25 million will be fully invested. What is the effective cost rate of borrowing in the CD market? A) 6.9% B) 7.2% C) 6.0% D) 5.5% E) None of the above.

Q: An equity option's theoretical delta reflects the sensitivity of its market price to changes in: A. the volatility of the underlying stock price B. the dividends paid to the underlying stockholders C. the underlying stock price D. the time to expiration

Q: Factors that will affect a bank's decision as to which nondeposit sources of funds it will use to cover its projected funds gap include which of the following? A) The relative cost of raising the funds. B) The length of time the funds will be required. C) The risk associated with each source of funds. D) The size of the bank. E) All of the above.

Q: A call option on the ABCD stock, with an exercise price of $50, is selling for $5.00 and the stock price is also $50. The call option has a delta of 0.3. If within a short period of time the stock price increases to $52, what would be the change in the price of the call option? A. increases by $0.60 B. decreases by $0.60 C. increases by $2.00 D. decreases by $2.00

Q: First National Bank has new loan requests of $175 million, needs to purchase $50 million in U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $45 million. Deposits received today total $140 million and the bank expects to bring in an additional $230 million next week. What is First National's estimated funds gap for the coming week? A) $225 million. B) $145 million. C) $135 million. D) $100 million. E) None of the above.

Q: A put option on the ABC stock, with an exercise price of $60, is selling for $4.00 and the stock price is also $60. The put option has a delta of 0.5. If within a short period of time the stock price increases to $61, what would be the change in the price of the put option? A. increases by $0.50 B. decreases by $0.50 C. increases by $1.00 D. decreases by $1.00

Q: First National Bank has new loan requests of $225 million, needs to purchase $100 million in U.S. Treasury securities to meet pledging requirements, and anticipates draws against credit lines of $135 million. Deposits received today total $215 million and the bank expects to bring in an additional $100 million next week. What is First National's estimated funds gap for the coming week? A) $225 million. B) $145 million. C) $135 million. D) $100 million. E) None of the above.

Q: Suppose Ralph's stock price is currently $50. In the next six months it will either fall to $30 or rise to $80. What is the option delta of a call option with an exercise price of $50? A. 0.375 B. 0.500 C. 0.600 D. 0.75

Q: The source of short-term funds for commercial banks that was developed to tap temporary surplus funds held by large corporate and wealthy individual customers is: A) Federal funds. B) Commercial paper. C) Eurodollar deposits. D) Negotiable CDs. E) None of the above.

Q: A call option has an exercise price of $100. At the final exercise date, the stock price could be either $50 or $150. Which investment would combine to give the same payoff as the stock? A. Lend PV of $50 and buy two calls B. Lend PV of $50 and sell two calls C. Borrow $50 and buy two calls D. Borrow $50 and sell two calls

Q: Large time deposits are generally referred to as: A) Mini CDs. B) Jumbo CDs. C) Large CDs. D) Giant CDs. E) Super CDs.

Q: Discounted cash flow approach to valuation does not work in the case of options because: A. it is possible to but difficult to estimate the expected cash flows. B. the estimated cash flows have to be discounted at the opportunity cost of capital. C. finding the opportunity cost of capital is impossible as the risk of options change every time the stock price moves. D. (B) and (C) above

Q: The phrase "short-term borrowings of immediately available money" refers to: A) Negotiable CDs B) Eurodollar deposits C) Commercial paper issues D) Borrowings of legal reserves at the Federal Reserve banks E) None of the above.

Q: Explain what implied volatility, as measured by the VIX, may mean to the overall stock market.

Q: The most popular domestic source of borrowed reserves for U.S. banks is: A) Federal funds market B) Money market negotiable CDs C) Eurodollar market D) Borrowings from the Federal Reserve Banks E) Commercial paper market