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Finance
Q:
__________________________ are the assets of a financial institution that will mature or be repriced within a set period of time.
Q:
The historical returns data for the past three years for Stock B and the stock market portfolio are: Stock B: 24%, 0%, 24%, Market Portfolios: 10%, 12%, 20%. Calculate the expected return for Stock B and the market portfolio.
A. Stock B 16%, Market Portfolio: 14%
B. Stock B 14%, Market Portfolio: 16%
C. Stock B 24%, Market Portfolio: 12%
D. None of the above
Q:
Solvency (or capital) risk for a bank can be measured by__________________________. List one way solvency risk can be measured.
Q:
The historical returns data for the past three years for Company A's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. According to the security market line (SML), the Stock A is:
A. Over priced
B. Under priced
C. Correctly priced
D. Need more information
Q:
__________________________ is the risk that has to do with the quality of the bank's assets and, in particular, the bank's loans.
Q:
The historical data for the past three years for the market portfolio are 10%, 10% and 16%. If the risk-free rate of return is 4%, what is the market risk premium?
A. 4%
B. 8%
C. 16%
D. None of the above
Q:
The equity multiplier for a bank measures the amount of _____________________ of the bank and is one part of the evaluation of the bank's ROE.
Q:
The historical returns data for the past three years for Company A's stock is -6.0%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. If the risk-free rate of return is 4%, what is the cost of equity capital (required rate of return of company A's common stock) using CAPM?
A. 18%
B. 14%
C. 12%
D. None of the above
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Total Revenues?
A) $1500
B) $2000
C) $2050
D) $1950
E) $1450
Q:
The historical returns data for the past three years for Company A's stock is -6%, 15%, 15% and that of the market portfolio is 10%, 10% and 16%. Calculate the beta for Stock A.
A. 1.75
B. 1.0
C. 0.57
D. None of the above
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Increase in Undivided Profits?
A) $150
B) $210
C) $400
D) ($250)
E) $750
Q:
Cost of equity can be estimated using:
A. The Fama-French three-factor model
B. Capital Asset Pricing Model (CAPM)
C. Arbitrage Pricing theory (APT)
D. All of the above
Q:
Cost of equity can be estimated using:
A. Discounted cash flow (DCF) approach
B. Capital Asset Pricing Model (CAPM)
C. Arbitrage Pricing theory (APT)
D. All of the above
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Net Income?
A) $150
B) $210
C) $400
D) ($250)
E) $750
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Net Operating Income or Net Income Before Extraordinary Income?
A) $150
B) $210
C) $400
D) ($250)
E) $750
Q:
The market value of XYZ Corporation's common stock is 40 million and the market value of the risk-free debt is 60 million. The beta of the company's common stock is 0.8, and the expected market risk premium is 10%. If the Treasury bill rate is 6%, what is the firm's cost of capital? (Assume no taxes.)
A. 9.2%
B. 14%
C. 8.1%
D. None of the above
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Net Non Interest Income?
A) $150
B) $210
C) $400
D) ($250)
E) $750
Q:
The market value of Charcoal Corporation's common stock is $20 million, and the market value of its risk-free debt is $5 million. The beta of the company's common stock is 1.25, and the market risk premium is 8%. If the Treasury bill rate is 5%, what is the company's cost of capital? (Assume no taxes.)
A. 15%
B. 14.6%
C. 13%
D. None of the above
Q:
You know the following information about the Taylor National Bank
Provision for Loan Losses ($100)
Income Taxes ($140)
Non Interest Income $500
Dividends ($60)
Securities Gains (Losses) ($50)
Interest Income $1500
Non Interest Expense $750
Interest Expenses $750
Given this information, what is this firms Net Interest Income?
A) $150
B) $210
C) $400
D) ($250)
E) $750
Q:
The after-tax weighted average cost of capital (WACC) is calculated using the formula:
A. WACC = (rD) (D/V) + (rE) (E/V) where: V = D + E
B. WACC = (rD) (1 - TC ) (D/V) + (rE) (E/V) where: V = D + E
C. WACC = (rD) (D/E) + (rE) (E/D)
D. none of the above
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Total Assets?
A) $1000
B) $300
C) $800
D) $200
E) $500
Q:
The company cost of capital when debt as well as equity is used for financing is:
A. cost of debt
B. cost of equity
C. the weighted average cost of capital (WACC)
D. none of the above
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Total Equity?
A) $1000
B) $300
C) $800
D) $200
E) $500
Q:
The hurdle rate for capital budgeting decisions is:
A. The cost of capital
B. The cost of debt
C. The cost of equity
D. All of the above
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Total Liabilities?
A) $1000
B) $300
C) $800
D) $200
E) $500
Q:
The market value of Cable Company's equity is $60 million, and the market value of its risk-free debt is $40 million. If the required rate of return on the equity is 15% and that on the debt is 5%, calculate the company's cost of capital. (Assume no taxes.)
A. 15%
B. 10%
C. 11%
D. None of the above
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Total Non Deposit Borrowings?
A) $1000
B) $300
C) $800
D) $200
E) $500
Q:
The market value of Charter Cruise Company's equity is $15 million, and the market value of its risk-free debt is $5 million. If the required rate of return on the equity is 20% and that on the debt is 8%, calculate the company's cost of capital. (Assume no taxes.)
A. 20%
B. 17%
C. 14%
D. None of the above
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Net Premises?
A) $130
B) $1000
C) $50
D) $200
E) $100
Q:
Which of the following type of projects has average risk?
A. Speculation ventures
B. New products
C. Expansion of existing business
D. Cost improvement
Q:
You know the following information about the Webb State Bank
Accumulated Depreciation $40
Net Loans $600
Fed Funds Purchased and Repurchase Agreements $200
Cash and Due from Banks $50
Trading Account Securities $40
Miscellaneous Assets $100
Deposits $500
Undivided Profits $140
Gross Premises $90
Surplus $40
Subordinated Debt $100
Investment Securities $160
Common Stock Par $20
Gross Loans $700
Given this information, what is this firms Allowance for Loan Losses?
A) $1300
B) $1000
C) $50
D) $200
E) $100
Q:
Which of the following type of projects has the lowest risk?
A. Speculation ventures
B. New products
C. Expansion of existing business
D. Cost improvement
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Total Revenues?
A) $800
B) $850
C) $150
D) $950
Q:
A firm might categorize its projects into:
I) Cost improvement projects
II) Expansion projects (existing business)
III) New products projects
IV) Speculative ventures
A. III only
B. I, II and III only
C. II and IV only
D. I,II,III, and IV
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Increase in Undivided Profits?
A) $300
B) $150
C) ($50)
D) $120
E) $80
Q:
Which of the following types of projects have the highest risk?
A. Speculation ventures
B. New products
C. Expansion of existing business
D. Cost improvement, (known technology)
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Net Income?
A) $300
B) $150
C) ($50)
D) $120
E) $80
Q:
If firms use the company cost of capital for evaluating all of their projects, which of the following is likely?
I) Accepting poor low risk projects.
II) Rejecting good high risk projects.
III) Correctly accept projects with average risk.
A. I only
B. II only
C. III only
D. I,II and III
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Pretax Net Operating Income (or Net Income before Extraordinary Items)?
A) $300
B) $150
C) ($50)
D) $120
E) $80
Q:
If a firm uses the same company cost of capital for evaluating all projects, which of the following is likely?
I) Rejecting good low risk projects
II) Accepting poor high risk projects
III) Correctly accept projects with average risk
A. I only
B. I and II only
C. I, II, and III
D. II only
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Net Non Interest Income?
A) $300
B) $150
C) ($50)
D) $120
E) $80
Q:
Using the company cost of capital to evaluate a project is:
I) Always correct
II) Always incorrect
III) Correct for projects that are about as risky as the average of the firm's other assets
A. I only
B. II only
C. III only
D. I and III only
Q:
You know the following information about the Davis National Bank
Total Interest Expenses ($500)
Total Non Interest Income $100
Securities Gains (Losses) $ 50
Income Taxes ($ 80)
Dividends to Stockholders ($ 40)
Total Interest Income $800
Total Non Interest Expenses ($150)
Provision for Loan Losses ($100)
Given this information, what is this firms Net Interest Income?
A) $300
B) $150
C) ($50)
D) $120
E) $80
Q:
The cost of capital for a project depends on:
A. The company's cost of capital
B. The use to which the capital is put, i.e. the project
C. The industry cost of capital
D. All of the above
Q:
You know the following information about the Miller State Bank
Gross Loans $300
Miscellaneous Assets $50
Deposits $390
Total Equity $50
Common Stock Par $5
Non-Deposit Borrowings $60
Investment Securities $150
Net Premises $40
Surplus $5
Allowance for Loan Losses $50
Deposits $390
Total Assets $500
Gross Premises $70
Given this information, what is this firms Total Liabilities Plus Equity?
A) $250
B) $450
C) $150
D) $50
E) $500
Q:
Cost of capital is the same as cost of equity for firms:
A. financed entirely by debt
B. financed by both debt and equity
C. financed entirely by equity
D. none of the above
Q:
You know the following information about the Miller State Bank
Gross Loans $300
Miscellaneous Assets $50
Deposits $390
Total Equity $50
Common Stock Par $5
Non-Deposit Borrowings $60
Investment Securities $150
Net Premises $40
Surplus $5
Allowance for Loan Losses $50
Deposits $390
Total Assets $500
Gross Premises $70
Given this information, what is this firms Undivided Profits?
A) $50
B) $5
C) $10
D) $40
E) $450
Q:
The company cost of capital is the appropriate discount rate for a firm's:
A. low risk projects
B. high risk projects
C. average-risk projects
D. all of the above
Q:
You know the following information about the Miller State Bank
Gross Loans $300
Miscellaneous Assets $50
Deposits $390
Total Equity $50
Common Stock Par $5
Non-Deposit Borrowings $60
Investment Securities $150
Net Premises $40
Surplus $5
Allowance for Loan Losses $50
Deposits $390
Total Assets $500
Gross Premises $70
Given this information, what is this firms Total Liabilities?
A) $390
B) $60
C) $450
D) $500
E) $50
Q:
Explain why growth mutual funds are worse investments than taking out a second mortgage on a home and investing in the market index.
Q:
You know the following information about the Miller State Bank
Gross Loans $300
Miscellaneous Assets $50
Deposits $390
Total Equity $50
Common Stock Par $5
Non-Deposit Borrowings $60
Investment Securities $150
Net Premises $40
Surplus $5
Allowance for Loan Losses $50
Deposits $390
Total Assets $500
Gross Premises $70
Given this information, what is this firms Depreciation?
A) $250
B) $30
C) $70
D) $40
E) $110
Q:
Where would under priced and overpriced securities plot on the SML (security market line)?
Q:
You know the following information about the Miller State Bank:
Gross Loans $300
Miscellaneous Assets $50
Deposits $390
Total Equity $50
Common Stock Par $5
Non-Deposit Borrowings $60
Investment Securities $150
Net Premises $40
Surplus $5
Allowance for Loan Losses $50
Deposits $390
Total Assets $500
Gross Premises $70
Given this information, what is this firms Net Loans?
A) $250
B) $350
C) $500
D) $50
E) $150
Q:
Briefly explain the "capital asset pricing model."
Q:
Fee income arising from fiduciary transactions include all of the following except:
A) Checking account maintenance fees
B) Fees for managing and protecting a customers property
C) Fees for recordkeeping for corporate security
D) Fees for dispersing interest and dividend payments for a corporation
E) Fees for managing corporate and individual retirement plans
Q:
Briefly explain the term "security market line."
Q:
Explain the term market risk.
Q:
Which of the following most accurately describes the principal type(s) of bank noninterest income:
A) Fees from fiduciary transactions
B) Fees from deposit transactions
C) Fees from securities transactions
D) Fees from additional noninterest income
E) All of the above
Q:
FASB Rule 115 focuses primarily on bank:
A) Deposit sources
B) Investments in marketable securities
C) Derivatives trading
D) Loan-loss reserves
E) Federal funds
Q:
Briefly explain the term "market portfolio."
Q:
What financial service industry category is second to the banking industry in total assets held:
A) Mutual funds
B) Thrifts
C) Investment banks
D) Insurance companies
E) Pension funds
Q:
Briefly explain the term "risk-free rate of interest"
Q:
Briefly explain the effect of introducing borrowing and lending at the risk-free rate on the efficient portfolios.
Q:
Which of the following assets is the largest asset item on the bank's balance sheet?
A) Securities
B) Cash
C) Loans
D) Bank Premises
E) None of the above
Q:
Which of the following accounts is sometimes called the bank's primary reserves?
A) Cash and deposits due from bank
B) Investment securities
C) Trading account securities
D) Fed funds sold
E) None of the above
Q:
Explain the term efficient portfolios.
Q:
The addition of investment grade baseball trading cards is likely to expand the efficient frontier to a better risk return trade off.
Q:
Which of the following financial statements shows the revenues and expense of a bank over a set period of time?
A) The statement of stockholders equity
B) The funds-flow statement
C) The report of financial condition
D) The report of income
E) None of the above
Q:
A bank that has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net income?
A) $7
B) -$14
C) $18
D) $32
E) None of the above
Q:
It is not possible to earn a return that is outside the efficient frontier without the existence of a risk free asset or some other asset that is uncorrelated with your portfolio assets.
Q:
A bank that has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net noninterest income?
A) $7
B) -$14
C) $18
D) $32
E) None of the above
Q:
Both the CAPM and the APT stress that expected return is not affected by unique risk.
Q:
A bank that has total interest income of $67 million and total noninterest income of $14 million. This bank has total interest expenses of $35 million and total noninterest expenses (excluding PLL) of $28 million. Its provision for loan losses is $6 million and its taxes are $5. What is this bank's net interest income?
A) $7
B) -$14
C) $18
D) $32
E) None of the above
Q:
The arbitrage pricing theory (APT) implies that the market portfolio is efficient.
Q:
A bank which starts with ALL of $1.48 million at the beginning of the year, charges off worthless loans of $.94 million during the year, recovers $.12 million on loans previously charged off and charges current income for a $1.02 million provision for loan losses will have an ALL at the end of the year of:
A) $.66 million
B) $3.32 million
C) $1.68 million
D) $1.28 million
E) The same amount as at the beginning of the year
Q:
Tests of CAPM have confirmed that Capital Asset Pricing Model holds good under all circumstances.
Q:
A type of letter of credit which is widely used in international trade is known as:
A) Banker's acceptance
B) Commercial paper
C) Repurchase agreement
D) Fed funds purchased
E) None of the above
Q:
According to the CAPM, market portfolio is a risky portfolio.
Q:
In theory, the CAPM requires that the market portfolio consist of all common stocks.
Q:
A bank sells shares of its common stock with a par value of $100 for $200 in the market. Which two accounts on the bank's balance sheet are going to be affected?
A) Retained earnings and capital surplus accounts
B) Subordinated notes and debentures and commons stock outstanding accounts
C) Retained earnings and common stock outstanding accounts
D) Common stock outstanding and capital surplus accounts
E) Only the common stock outstanding account is affected