Q&A Hero

Q: In the US, most bonds make coupon payments annually.

Q: T F 35. Foreign banks taking retail deposits in the U.S. can qualify for federal deposit insurance.

Q: The yield to maturity on a bond is really its internal rate of return.

Q: T F 41. The first ATM machine could only handle cash withdrawals.

Q: Which bond is more sensitive to an interest rate change of 0.75%? Bond A: YTM = 4.00%, Maturity = 8 years, Coupon = 6% or $60, Par Value = $1,000 Bond B: YTM = 3.50%, Maturity = 5 years, Coupon = 7% or $70, Par Value = $1,000 A. A B. B C. Both the same D. Cannot be determined

Q: T F 45. Personal checking accounts tend to be more profitable than commercial checking accounts.

Q: What forward rate is embedded in a two year zero coupon bonds with a yield to maturity of 6% and a three year zero coupon bond and a yield to maturity of 6.5%? Assume both bonds are currently priced at par. A. 5.50% B. 6.00% C. 6.50% D. 7.50%

Q: T F 34. The International Banking Act of 1978 prohibited foreign-owned banks from crossing state lines unless the state or states involved allow cross-border entry.

Q: Mr. X invests $1000 at 10% nominal rate for one year. If the inflation rate is 4%, what is the real value of the investment at the end of one year? A. $1100 B. $1000 C. $1058 D. None of the above

Q: T F 40. One half of all transactions through an ATM machine are deposits.

Q: If the nominal interest rate per year is 10% and the inflation rate is 4%, what is the real rate of interest? A. 10% B. 4% C. 5.8% D. None of the above

Q: T F 44. Interest-bearing checking accounts, on average, tend to generate lower net returns than regular (noninterest-bearing) checking accounts.

Q: The expectations hypothesis states that the forward interest rate is the: I) expected future spot rate II) always greater than the spot rate III) yield to maturity A. I only B. II only C. III only D. II and III only

Q: How can one invest today at the 2-year forward rate of interest? I) By buying a 2-year bond and selling a 1-year bond with the same coupon II) By buying a 1-year bond and selling a 2-year bond with the same coupon III) By buying a 1-year bond and then after a year reinvesting in a further 1-year bond A. I only B. II only C. III only D. II and III only

Q: T F 33. Under U.S. regulations Edge Act subsidiaries must devote at least 50 percent of their business to assisting customers with export-import trade and international credit.

Q: Interest represented by "r2" is: A. Spot rate on a one-year investment (APR) B. Spot rate on a two-year investment (APR) C. Expected spot rate 2 years from today D. Expected spot rate one year from today

Q: T F 39. On-line P0S terminals substantially out-number off-line P0S service systems.

Q: If the 4-year spot rate is 7% and the 3-year spot rate is 6%, what is the one-year forward rate of interest three years from now? A. 10.0% B. 6.5% C. 9.6% D. None of the above

Q: T F 43. The availability of a large block of core deposits decreases the duration of a bank's liabilities.

Q: If the 5-year spot rate is 10% and the 4-year spot rate is 9%, what is the one-year forward rate of interest four years from now? A. 14.1% B. 9.5% C. 1.0% D. 11.0%

Q: T F 32. Under U.S. regulations no one U.S. bank can invest more than 50 percent of its consolidated capital and surplus in an export trading company.

Q: If the 3-year spot rate is 10.5% and the 2-year spot rate is 10%, what is the one-year forward rate of interest two years from now? A. 3.7% B. 9.5% C. 11.5% D. None of the above

Q: T F 38. Access to a P0S terminal is gained through the use of a credit card.

Q: A forward rate prevailing from period three through to period four can be: I) readily observed in the market place II) extracted from spot interest rate with 3 and 4 years to maturity III) extracted from 1 and 2 year spot interest rates A. I only B. II only C. III only D. I and III only

Q: T F 42. In general, the longer the maturity of a deposit, the lower the yield a financial institution must offer to its depositors because of the greater interest-rate risk the bank faces with longer-term deposits.

Q: Which of the following statements is true? I) The spot interest rate is a weighted average of yields to maturity II) Yield to maturity is the weighted average of spot interest rates and estimated forward rates III) The yield to maturity is always higher than the spot rates A. I only B. II only C. III only D. I and III only

Q: T F 37. One of the keys to branch office profitability is to apply the latest information technology and thereby lower personnel costs.

Q: The term structure of interest rates can be described as the: A. Relationship between the spot interest rates and the bond prices B. Relationship between spot interest rates and stock prices C. Relationship between spot interest rates and maturity of a bond D. None of the above

Q: T F 41. IRA and Keogh deposits have great appeal for bankers principally because they can be sold bearing relatively low (often below-market) interest rates.

Q: Volatility of a bond is given by: I) Duration/ (1 + yield) II) Slope of the curve relating the bond price to the interest rate III) Yield to maturity A. I only B. II only C. III only D. I and II only

Q: T F 31. The barriers between securities dealers and international banks are falling in many countries, making it harder for the public to see real differences between financial institutions.

Q: If a bond's volatility is 5% and the interest rate changes by 0.5% (points) then the price of the bond: A. changes by 5% B. changes by 2.5% C. changes by 7.5% D. none of the above

Q: T F 36. Bank branch offices are often specially configured today to maximize sales opportunities.

Q: T F 40. Demand deposits are among the most volatile and least predictable of a bank's sources of funds with the shortest potential maturity.

Q: If a bond's volatility is 10% and the interest rate goes down by 0.75% (points) then the price of the bond: A. decreases by 10% B. decreases by 7.5% C. increases by 7.5% D. increases by 0.75%

Q: A bond with duration of 5.7 years has yield to maturity of 9%. The bond's volatility is: A. 1.9% B. 5.2% C. 5.7% D. 9.0%

Q: A bond with duration of 10 years has yield to maturity of 10%. This bond's volatility is: A. 9.09% B. 6.8% C. 14.6% D. 6.0%

Q: T F 35. To close a bank branch office in the United States a bank must give its customers 30 days advance notice.

Q: A bond with a face value of $1,000, coupon rate of 0%, yield to maturity of 9%, and ten years to maturity. This bond's duration is: A. 6.7 years B. 7.5 years C. 9.6 years D. 10.0 years

Q: T F 39. Excess legal reserves are the source out of which new bank loans are created.

Q: T F 44. Community banks are usually smaller banks that are devoted principally to the markets for smaller, locally based deposits and loans.

Q: A bond with a face value of $1,000 has coupon rate of 7%, yield to maturity of 10%, and twenty years to maturity. The bond's duration is: A. 10.0 years B. 7.4 years C. 20.0 years D. 12.6 years

Q: Consider a bond with a face value of $1,000, a coupon rate of 6%, a yield to maturity of 8%, and ten years to maturity. This bond's duration is: A. 8.7 years B. 7.6 years C. 0.1 years D. 6.5 years

Q: T F 34. The optimal choice for a new branch site must be that site that offers the bank the highest expected rate of return on the capital invested in the project.

Q: Briefly explain, "continuous compounding."

Q: T F 38. Domestic deposits generate legal reserves.

Q: What is the difference between simple interest and compound interest?

Q: T F 43. Traditional brick-and-mortar bank branch offices are on the decline in the U.S. today.

Q: Describe how you would go about finding the present value of any annuity given the formula for the present value of a perpetuity.

Q: T F 33. Higher levels of savings deposits are usually to be found in those bank branch office locations where there is an above-average proportion of older heads of households and where there is a large proportion of residents who own their own homes.

Q: Define the term "perpetuity."

Q: T F 37. The contention that there are certain banking services (such as small loans or savings and checking accounts) that every citizen should have access to is usually called socialized banking.

Q: Discuss why a dollar tomorrow cannot be worth less than a dollar the day after tomorrow.

Q: T F 42. There are only a very small number of unit banks in the U.S. today.

Q: State the "rate of return rule."

Q: T F 32. More desirable bank branch office sites normally have residents who are above-average in age.

Q: Briefly explain the concept of risk.

Q: T F 36. Gradual phase-out of legal interest-rate ceilings on deposits offered by U.S. banks was first authorized by the Glass-Steagall Act.

Q: State the "net present value rule."

Q: T F 41. Bank organizational structure has become more complex in recent years.

Q: T F 31. Newly designed bank branch offices in recent years have emphasized more heavily effective communication of service options to the customer in an effort to promote service sales.

Q: Intuitively explain the concept of the present value.

Q: T F 35. Legally imposed interest-rate ceilings on deposits were first set in place in the United States after passage of the Bank Holding Company Act.

Q: Briefly explain the term "discount rate."

Q: T F 40. Banks acquired by holding companies are referred to as affiliated banks.

Q: Compound interest assumes that you are reinvesting the interest payments at the rate of return.

Q: T F 30. The total number of full-service branch offices has declined in the United States in recent years.

Q: In the case of a growing perpetuity, the present value of the cash flow is given by: [C1/(r - g)] where r > g.

Q: T F 34. The implicit interest rate on checkable deposits equals the difference between the cost of supplying deposit services to a customer and the amount of the service charge actually assessed that customer.

Q: In the amortization of a mortgage loan with equal payments, the fraction of each payment devoted to interest steadily increases over time and the fraction devoted to reducing the loan decreases steadily.

Q: An equal-payment home mortgage is an example of an annuity.

Q: T F 39. Banks which operate entirely on the web are known as invisible banks.

Q: The value of a five-year annuity is equal to the sum of two perpetuities. One makes its first payment in year 1, and the other makes its first payment in year 6.

Q: T F 29. Most U.S. banks are chartered in urban areas.

Q: T F 33. Deposits owned by commercial banks and held with other banks are called correspondent deposits.

Q: An annuity is an asset that pays a fixed sum each year for a specified number of years.

Q: T F 38. Banks tend to have a higher proportion of outside directors than a typical manufacturing firm.

Q: The rate of return on any perpetuity is equal to the cash flow multiplied by the price.

Q: "Accept investments that offer rates of return in excess of opportunity cost of capital".

Q: T F 28. Society pays a price if it restricts the number of bank charters below the number that the private sector normally would generate due to lessened competition.