Q&A Hero

Q: T F 25. Despite the rapid growth of automation in U.S. banking, there are more full-service branch banking offices than automated teller machines across the whole U.S.

Q: What is the present value annuity factor at an interest rate of 9% for 6 years? A. 7.5233 B. 4.4859 C. 1.6771 D. None of the above

Q: T F 50. The bank's asset utilization ratio reflects the effectiveness of the bank's expense management.

Q: What is the present value annuity factor at a discount rate of 11% for 8 years? A. 5.7122 B. 11.8594 C. 5.1461 D. None of the above

Q: T F 49. Deposits with the Federal Reserve banks are considered to have moderate credit risk and are therefore placed in the 50 percent risk weight category.

Q: If the five-year present value annuity factor is 3.60478 and four-year present value annuity factor is 3.03735, what is the present value at the $1 received at the end of five years? A. $0.63552 B. $1.76233 C. $0.56743 D. None of the above

Q: T F 24. The average U.S. bank is larger in size (in terms of number of branch offices) than the average Canadian bank.

Q: If the three-year present value annuity factor is 2.673 and two-year present value annuity factor is 1.833, what is the present value of $1 received at the end of the 3 years? A. $1.1905 B. $0.84 C. $0.89 D. None of the above

Q: T F 49. Smaller banks usually have fewer liquid assets than larger banks.

Q: If you receive $1,000 payment at the end each year for the next five years, what type of cash flow do you have? A. Uneven cash flow stream B. An annuity C. An annuity due D. None of the above

Q: T F 48. One of the reasons to regulate the capital position of banks is to limit the risk of bank failures, especially large bank failures.

Q: An annuity is defined as A. Equal cash flows at equal intervals of time for a specified period of time B. Equal cash flows at equal intervals of time forever C. Unequal cash flows at equal intervals of time forever D. None of the above

Q: T F 23. Over half of all U.S. states today limit branching activity.

Q: You would like to have enough money saved to receive an $80,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments starts on the day of retirement. The interest rate is 10%)? A. $1,500,000 B. $880,000 C. $800,000 D. None of the above

Q: T F 48. The ratio of a bank's net operating income to the number of a bank's full-time-equivalent employees is called the employee productivity ratio.

Q: You would like to have enough money saved to receive a $50,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments starts on the day of retirement. The interest rate is 8%)? A. $1,000,000 B. $675,000 C. $625,000 D. None of the above

Q: T F 47. The daily rate at which robberies have occurred in the U.S. has continued to climb in the 1990s.

Q: You would like to have enough money saved to receive $80,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments start one year from the date of your retirement. The interest rate is 8%)? A. $7,500,000 B. $750,000 C. $1,000,000 D. None of the above

Q: T F 22. A banking corporation chartered by either federal or state governments that operates only one full-service office is called a unit bank.

Q: T F 47. The interest rate spread between market yields on bank debt issues (such as capital notes and CDs) and the market yields on government securities of the same maturity is considered to be a measure of market risk in banking.

Q: What is the present value of $10,000 per year perpetuity at an interest rate of 10%? A. $10,000 B. $100,000 C. $200,000 D. None of the above

Q: T F 46. The most important source of thrift capital in terms of dollar volume is common stock (par value).

Q: You would like to have enough money saved to receive $100,000 per year perpetuity after retirement so that you and your family can lead a good life. How much would you need to save in your retirement fund to achieve this goal (assume that the perpetuity payments start one year from the date of your retirement. The interest rate is 12.5%)? A. $1,000,000 B. $10,000,000 C. $800,000 D. None of the above

Q: T F 21. The majority of all U.S. banks are members of the Federal Reserve System.

Q: Which of the following is generally considered an example of a perpetuity: A. Interest payments on a 10-year bond B. Interest payments on a 30-year bond C. Consols D. None of the above

Q: T F 46. The ratio of uninsured deposits to total deposits is considered to be a measure of credit risk in banking.

Q: A perpetuity is defined as: A. Equal cash flows at equal intervals of time for a specific number of periods B. Equal cash flows at equal intervals of time forever C. Unequal cash flows at equal intervals of time forever D. None of the above

Q: T F 45. Equity notes are considered to be part of Tier 1 capital.

Q: The opportunity cost of capital for a risky project is A. The expected rate of return on a government security having the same maturity as the project B. The expected rate of return on a well-diversified portfolio of common stocks C. The expected rate of return on a portfolio of securities of similar risks as the project D. None of the above

Q: T F 20. State-chartered banks in the United States represent about a quarter of all U.S.-chartered banks, while national banks account for approximately three quarters of all U.S. chartered banks.

Q: Which of the following statements regarding the net present value rule and the rate of return rule is not true? A. Accept a project if NPV > cost of investment B. Accept a project if NPV is positive C. Accept a project if return on investment exceeds the rate of return on an equivalent investment in the financial market D. Reject a project if NPV is negative

Q: According to the net present value rule, an investment in a project should be made if the: A. Net present value is greater than the cost of investment B. Net present value is greater than the present value of cash flows C. Net present value is positive D. Net present value is negative

Q: T F 45. The ratio of cash and government securities to total assets is considered to be a measure of liquidity risk in banking.

Q: T F 44. According to recent research, bank stock prices usually drop within a week after a dividend cut is announced.

Q: An initial investment of $500 produces a cash flow $550 one year from today. Calculate the rate of return on the project A. 10% B. 15% C. 25% D. none of the above

Q: T F 44. Loans past due for 90 days or more are classified as nonperforming assets.

Q: The following statements regarding the NPV rule and the rate of return rule are true except: A. Accept a project if its NPV > 0 B. Reject a project if the NPV < 0 C. Accept a project if its rate of return > 0 D. Accept a project if its rate of return > opportunity cost of capital

Q: What is the net present value (NPV) of the following cash flows at a discount rate of 9%? A. $122,431.81 B. $200,000 C. $155,950.68 D. None of the above

Q: T F 43. If the ratio of tangible equity capital to total assets is 2 percent or less it is subject to being placed in conservatorship or receivership if its capital ratios are not increased within a prescribed period of time even if its net worth is still positive.

Q: T F 19. Nearly all U.S. banks with federal or state charters have their deposits insured by the Federal Deposit Insurance Corporation.

Q: What is the present value of the following cash flow at a discount rate of 16% APR? A. $136,741.97 B. $122,948.87 C. $158,620.69 D. None of the above

Q: What is the net present value of the following cash flow at a discount rate of 11%? A. $69,108.03 B. $231,432.51 C. $80,000 D. None of the above

Q: T F 43. Charge-offs represent securities a bank decides to sell because they have declined in value.

Q: At an interest rate of 10%, which of the following cash flows should you prefer? A. Option A B. Option B C. Option C D. Option D

Q: T F 42. If a bank benefits when a foreign currency declines in value, then the bank is in a long position.

Q: What is the present value of the following cash flow at a discount rate of 9%? A. $372,431.81 B. $450,000 C. $405,950.68 D. None of the above

Q: T F 18. Nearly three quarters of all U.S. banks exceed $100 million in asset size apiece.

Q: If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project? A. $250,000 B. $50,000 C. $200,000 D. None of the above

Q: T F 42. The ratio of nonperforming assets to total loans and leases is considered to be a measure of a bank's market risk.

Q: An initial investment of $400,000 will produce an end of year cash flow of $480,000. What is the NPV of the project at a discount rate of 20%? A. $176,000 B. $80,000 C. $0 (zero) D. None of the above

Q: T F 41. If a bank benefits when the value of a foreign currency rises, the bank is said to be in a short position.

Q: T F 17. Bank size is not considered a significant factor in determining how banks are organized.

Q: The net present value formula for one period is: I) NPV = C0 + [C1/(1 + r)]; II) NPV = PV required investment; and III) NPV = C0/C1 A. I only B. I and II only C. III only D. None of the above

Q: T F 41. The noninterest margin is generally positive for most banks.

Q: The present value formula for one period cash flow is: A. PV = C1(1 + r) B. PV = C1/(1 + r) C. PV = C1/r D. None of the above

Q: If the present value of $600 expected to be received one year from today is $400, what is the one-year discount rate? A. 15% B. 20% C. 25% D. 50%

Q: T F 40. The Basel Agreement on capital as drafted in the 1980s failed to deal with market risk.

Q: If the one-year discount factor is 0.90, what is the present value of $120 to be received one year from today? A. $100 B. $96 C. $108 D. None of the above

Q: Over the years, managers of banks and other financial institutions have evolved different organizational forms to address changes in the industry. Indeed, these firms are organized to carry out various roles in the most efficient way. This is referred to as _________________________.

Q: If the present value of $250 expected to be received one year from today is $200, what is the discount rate? A. 10% B. 20% C. 25% D. None of the above

Q: T F 40. ROA measures how capably the management of a financial institution has been converting the institution's assets into net earnings.

Q: If the present value of $480 to be paid at the end of one year is $400, what is the one-year discount factor? A. 0.8333 B. 1.20 C. 0.20 D. None of the above

Q: T F 39. Recent research suggests that interest-rate contracts display considerably less risk exposure than do foreign-currency contracts.

Q: If the one-year discount factor is 0.8333, what is the discount rate (interest rate) per year? A. 10% B. 20% C. 30% D. None of the above

Q: Present Value of $100,000 that is, expected, to be received at the end of one year at a discount rate of 25% per year is: A. $80,000 B. $125,000 C. $100,000 D. None of the above

Q: T F 39. The most profitable U.S. banks in terms of both ROA and ROE are medium-size institutions in the asset size range of $100 million to $10 billion, according to the textbook.

Q: The one-year discount factor at an interest rate of 100% per year is: A. 1.5 B. 0.5 C. 0.25 D. None of the above

Q: T F 38. Under the FDIC Improvement Act of 1991 a bank whose leverage ratio drops to 2 percent or less is considered to be critically undercapitalized.

Q: One year discount factor at a discount rate of 25% per year is: A. 1.25 B. 1.0 C. 0.8 D. None of the above

Q: T F 45. The tool used by the Federal Reserve System to influence the economy and behavior of banks is known as moral hazard.

Q: Present value of $121,000 expected to be received one year from today at an interest rate (discount rate) of 10% per year is: A. $121,000 B. $100,000 C. $110,000 D. None of the above

Q: T F 38. If a bank adds more full-time employees and posts the same net operating income, its employee productivity ratio, as defined in the text, must fall.

Q: T F 37. Under the FDIC Improvement Act of 1991 a U.S. bank possessing a leverage ratio greater than 4 percent would be considered well capitalized.

Q: The rate of return is also called: I) discount rate; II) hurdle rate; III) opportunity cost of capital A. I only B. I and II only C. I, II, and III D. None of the given ones

Q: T F 37. In recent years the U.S. banking industry's equity multiplier has generally risen in response to regulatory pressure to raise more capital.

Q: If the present value of the cash flow X is $240, and the present value cash flow Y $160, then the present value of the combined cash flow is: A. $240 B. $160 C. $80 D. $400

Q: If the interest rate is 12%, what is the 2-year discount factor? A. 0.7972 B. 0.8929 C. 1.2544 D. None of the above

Q: T F 36. The last line of defense against bank failure is owner's capital, according to the textbook.

Q: Present Value is defined as: A. Future cash flows discounted to the present at an appropriate discount rate B. Inverse of future cash flows C. Present cash flow compounded into the future D. None of the above

Q: T F 44. Passed in 1977, the Equal Credit Opportunity Act prohibits banks from discriminating against customers merely on the basis of the neighborhood in which they live.