Q&A Hero

Q: Customers who wish to set aside money in anticipation of future expenditures or financial emergencies put their money in A) Drafts B) Second-party payment accounts C) Thrift Deposits D) Transaction accounts E) None of the above

Q: If the standard deviation of annual returns on the asset is 20% and the interval is half a year, then the downside change is equal to: A. 37.9% B. 19.3% C. 20.1% D. 13.2%

Q: Conditional deposit pricing may involve all of the following factors except: A) The level of interest rates B) The number of transactions passing through the account C) The average balance in the account D) The maturity of the account E) All of the above are used

Q: If the standard deviation for annual returns on the asset is 40% and the interval is a year, then the downside change is equal to: A. 27.4% B. 53.6% C. 32.97% D. 38.7%

Q: A bank quotes an APY of 8%. A small business that has an account with this bank had $2,500 in their account for half the year and $5,000 in their account for the other half of the year. How much in total interest earnings did this bank make during the year? A) $300 B) $200 C) $400 D) $150 E) None of the above

Q: If the standard deviation of the annual returns (s ) on the asset is 40%, and the time interval is a year, then the upside change is equal to: A. 88.2% B. 8.7% C. 63.2% D. 49.18%

Q: 23. If "u" equals the quantity (1 + upside change), then the quantity (1 + downside change) is equal to: A. -u B. -1/u C. 1/u D. none of the above.

Q: A customer has a savings account for one year. During that year they earn $65.50 in interest. For 180 days they have $2000 in the account for the other 180 days they have $1000 in the account. What is the annual percentage yield on this savings account. A) 6.55% B) 3.28% C) 4.37% D) 8.73% E) None of the above

Q: Suppose VS's stock price is currently $20. Six-month call option on the stock with an exercise price of $15 has a value of $7.14. Calculate the price of an equivalent put option if the six-month risk-free interest rate is 5% (periodic rate). A. $1.43 B. $9.43 C. $8.00 D. $12.00

Q: A customer has a savings deposit for 45 days. During that time they earn $5 in interest and have an average daily balance of $1000. What is the annual percentage yield on this savings account? A) 0.5% B) 4.13% C) 4.07% D) 4.5% E) None of the above

Q: A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $4.45 per month. The bank has also determined that nonoperating expenses on deposits are $1.15 per month. It has also decided that it wants a profit of $.45 on its deposits. What monthly fee should this bank charge on its deposit accounts? A) $6.05 B) $5.60 C) $5.15 D) $4.45 E) None of the above

Q: A stock is currently selling for $50. The stock price could go up by 10% or fall by 5% each month. The monthly interest rate is 1% (periodic rate). Calculate the price of a European call option on the stock with an exercise price of $50 and a maturity of two months. (use the two-stage binomial method) A. $5.10 B. $2.71 C. $4.78 D. $3.62

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

Q: A bank determines from an analysis on its deposits that account processing and other operating expenses cost the bank $3.95 per month. It has also determined that its non operating expenses on its deposits are $1.35 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What monthly fee should this bank charge on its deposit accounts? A) $5.30 per month B) $3.95 per month C) $5.83 per month D) $5.70 per month E) None of the above

Q: 4 - 1 = -0.6

Q: A financial institution that charges customers based on the number of services they use and gives lower deposit fees or waives some fees for a customer that purchases two or more services is practicing: A) Marginal cost pricing B) Conditional pricing C) Relationship pricing D) Upscale target pricing E) None of the above

Q: Why would an option holder almost never exercise an option early?

Q: According to recent studies cited in this chapter, in choosing a bank to supply their deposits and other services business firms rank first which of the following factors? A) Quality of financial advice given B) Financial health of lending institution C) Whether loans are competitively priced D) Whether cash management and operations services are provided. E) Quality of bank officers.

Q: Briefly explain the relationship between risk and option values.

Q: According to recent studies cited in this chapter, in choosing a bank to hold their savings deposits household customers rank first which of the following factors? A) Familiarity B) Interest rate paid C) Transactional convenience D) Location E) Fees charged.

Q: Briefly explain how an option holder gains from the volatility of the underlying stock price.

Q: According to recent studies cited in this book, in selecting a bank to hold their checking accounts household customers rank first which of the following factors? A) Safety B) High deposit interest rates C) Convenient location D) Availability of other services E) Low fees and low minimum balance.

Q: Depository institutions selling deposits to the public in the United States must quote the rate of return pledged to the owner of the deposit which reflects the customer's average daily balance kept in the deposit. This quoted rate of return is known as the: A) Annual percentage rate (APR) B) Annual percentage yield (APY) C) Daily deposit yield (DDY) D) Daily average return (DAR) E) None of the above.

Q: Discuss the factors that determine the value of a call option.

Q: Briefly explain what is meant by put-call parity?

Q: The federal law that requires U.S. depository institutions to make greater disclosure of the fees, interest rates, and other terms attached to the deposits they sell to the public is called the: A) Consumer Credit Protection Act B) Fair Pricing Act C) Consumer Full Disclosure Act D) Truth in Savings Act E) None of the above.

Q: Briefly explain what is meant by "protective put."

Q: The deposit pricing method that favors large-denomination deposits because services are free if the deposit account balance stays above some minimum figure is called: A) Free pricing B) Conditionally free pricing C) Flat-rate pricing D) Upscale target pricing E) Marginal cost pricing

Q: Explain the main differences between the position diagrams and the profit diagrams.

Q: Using deposit fee schedules that vary deposit prices according to the number of transactions, the average balance in the deposit account, and the maturity of the deposit represents what deposit pricing method listed below? A) Marginal cost pricing B) Cost plus pricing C) Conditional pricing D) Upscale target pricing E) None of the above.

Q: Briefly explain how position diagrams are useful?

Q: 78. The formula Operating Expense per unit of deposit service + Estimated overhead expense + Planned profit from each deposit service unit sold reflects what deposit pricing method listed below? A) Marginal cost pricing B) Cost plus pricing C) Conditional pricing D) Upscale target pricing E) None of the above.

Q: Define the term "put option."

Q: The most profitable deposit for a bank is a: A) Time deposit B) Commercial checking account C) Personal checking account D) Passbook savings deposit E) Special checking account

Q: Define the term "call option."

Q: The types of deposits that will be created by the banking system depend predominantly upon: A) The level of interest rates B) The state of the economy C) The monetary policies of the central bank D) Public preference E) None of the above.

Q: Explain the difference between a European option and an American option.

Q: A deposit which offers flexible money market interest rates but is accessible for spending by writing a limited number of checks or executing preauthorized drafts is known as a: A) Demand deposit B) NOW account C) MMDAs D) Time deposit E) None of the above

Q: Noegotiable Orders of Withdrawal (NOW) accounts, interest-bearing savings accounts that can be used essentially the same as checking accounts, were authorized by: A) Glass-Steagall Act B) Depository Institutions Deregulation and Monetary Control Act (DIDMCA) C) Bank Holding Company Act D) Garn-St. Germain Depository Institutions Act E) None of the above

Q: Define the term "option." An option is defined as a right, but not an obligation, to buy or sell an underlying asset at a fixed price during a specified period of time. Type: Easy

Q: The stable and predictable base of deposited funds that are not highly sensitive to movements in market interest rates but tend to remain with the bank are called: A) Time deposits B) Core deposits C) Consumer CDs D) Nontransaction deposits E) None of the above

Q: Buying an in the money option will almost always produce a profit.

Q: Money-market deposit accounts (MMDAs), offering flexible interest rates, accessible for payments purposes, and designed to compete with share accounts offered by money market mutual funds, were authorized by the: A) Glass-Steagall Act B) Depository Institutions Deregulation and Monetary Control Act (DIDMCA) C) Bank Holding Company Act D) Garn-St.Germain Depository Institutions Act E) None of the above

Q: All things being equal, the closer an option gets to expiration, the lower the option price.

Q: Interest payments on regular checking accounts were prohibited in the United States under terms of the: A) Glass-Steagall Act B) McFadden-Pepper Act C) National Bank Act D) Garn-St. Germain Depository Institutions Act E) None of the above

Q: Options written on volatile assets are worth more than options written on safer assets.

Q: Deposit accounts whose principal function is to make payments for purchases of goods and services are called: A) Drafts B) Second-party payments accounts C) Thrift deposits D) Transaction accounts E) None of the above

Q: It is possible to replicate an investment in a call option by a levered investment in the underlying asset.

Q: Some people feel that individuals are entitled to some minimum level of financial services no matter what their income level. This issue is often called: A) Lifeline banking B) Preference banking C) Nondiscriminatory banking D) Lifeboat banking E) None of the above

Q: The value of a call option increases with higher volatility of the stock prices.

Q: On October 28, 2004, became the law, permitting depository institutions to electronically transfer check images instead of the checks themselves.

Q: An increase in the exercise price results in an equal increase in the call option price.

Q: is a process where merchants and utility companies take the information from a check an individual has just written and electronically debits the individuals account instead of sending the check through the regular check clearing process.

Q: An increase in the stock price results in an increase in the call option price.

Q: 57. For an European option: Value of call + PV(exercise price) = Value of put + share price.

Q: are accounts in domestic banking institutions where the U.S. Treasury keeps most of their operating funds.

Q: Due to the fact that they may be perceived as more risky, banks generally offer higher deposit rates than traditional banks.

Q: Buying a stock and a put option, and depositing the present value of the exercise price in a bank account and buying a call provide the same payoff.

Q: A(n) , which was authorized by Congress in 1997, allows individuals to make non-tax-deductible contributions to a retirement fund that can grow tax free and also pay no taxes on their investment earnings when withdrawn.

Q: An investor can get downside protection by buying a stock and a put option.

Q: CDs allow the depositor to withdraw some of his or her funds without a withdrawal penalty.

Q: Position diagrams and profit diagrams are one and the same.

Q: The writer of a put option loses if the stock price declines.

Q: CDs permit periodic adjustments in promised interest rates.

Q: CDs allow depositors to switch to a higher interest rate if market rates rise.

Q: If you write a put option, you acquire the right to buy stock at a fixed strike price.

Q: An European option gives its owner the right to exercise the option at any time before expiration.

Q: For decades depository institutions offered one type of savings plan. could be opened with as little as $5 and withdrawal privileges were unlimited.

Q: _____-income consumers appear to be more influenced by the size of the financial institution.

Q: A call options gives its owner the right to buy stock at a fixed strike price during a specified period of time.

Q: Deposit institution location is most important to ______-income consumers.

Q: If a put and call cost the same, how can an investor offset the cost of a buying a call? A. Borrowing money B. Sell a put C. Sell a stock D. Wait for the stock price to rise

Q: A(n) _________________________ is a retirement plan that institutions can sell which is designed for self-employed individuals.

Q: The value of a call option, beyond the stock price less the exercise price, is most likely to be realized when the option is: A. out of the money. B. in the money. C. at the money. D. cannot be determined.

Q: The _________________________ must be disclosed to customers based on the formula of one plus the interest earned divided by the average account balance adjusted for an annual 365 day year. It is the interest rate the customer has actually earned on the account.

Q: The value of a put option is negatively related to: I) stock price II) risk-free rate III) exercise price A. I only B. II only C. I and II only D. III only

Q: The _________________________ was passed in 1991 and specifies the information that institutions must disclose to their customers about deposit accounts.

Q: The value of a put option is positively related to: I) Exercise price II) Time to expiration III) Volatility of the underlying stock price IV) Risk-free rate A. I, II, and III only B. II, III, and IV only C. I, II, and IV only D. IV only

Q: A(n) _________________________ is a conditional method of pricing deposit services in which the fees paid by the customer depend mainly on the account balance and volume of activity.

Q: The value of a call option is negatively related to: I) Exercise price II) Risk-free rate III) Time to expiration A. I only B. II only C. III only D. II and III only