Old Exam with Answers - Financial Systems | FIN 3113, Exams of Finance

Download Old Exam with Answers - Financial Systems | FIN 3113 and more Exams Finance in PDF only on Docsity! 1 . We've encountered so-called "subprime" loans, which have been especially newsworthy over the last year or two. These are: Student Response Value Correct Answer Feedback A. loans at interest rates below the prime rate of interest. B. loans to finance government-operated enterprises. C. loans to municipalities, at tax-shielded interest rates. D. loans to higher-risk borrowers. 100% E. loans made only to businesses, not to individuals. Score: 2/2 2 . A/an ________________ can be viewed as a multi-class pass-through security, arising when mortgage loans are securitized. Student Response Value Correct Answer Feedback A. graduated payment mortgage B. collateralized mortgage obligation 100% C. reverse annuity mortgage D. balloon payment mortgage E. FHA loan Score: 2/2 3 . Julie is applying for a home mortgage loan of $190,000. The quoted interest rate is 9.0%. Julie will make equal monthly payments, to pay off the loan over 30 years. The monthly payment amount is _________. (nearest dollar) Student Response Value Correct Answer Feedback A. $1,849 B. $1,710 C. $ 864 D. $1,529 100% E. $6,632 Score: 2/2 4 . "Freddie Mac" and "Fannie Mae" are important institutions that came up in connection with: Student Response Value Correct Answer Feedback A. the commercial paper market. B. securitization of mortgage loans. 100% C. the provision of correspondent banking services. D. the innovation of balloon payment mortgage loans. E. entities that sell private mortgage insurance. Score: 2/2 Student Response Value Correct Answer Feedback A. they typically do not pay coupon interest. B. they typically pay extraordinarily high interest rates. C. they must have maturities of at least 10 years. D. they pay interest to investors which is exempt from Federal income tax. 100% E. they must have maturities no greater than 5 years. Score: 2/2 1 0 . Using Standard & Poor's ratings scheme, so-called "junk bonds" would be those with ratings of: Student Response Value Correct Answer Feedback A. "BBB" or above B. below "BBB" 100% C. "AA" or above D. below "AAA" E. "B" or above Score: 2/2 1 1 . _______________ is an unsecured bond, and one that's in a lower-priority position relative to other unsecured bonds issued by the same company. Student Response Value Correct Answer Feedback A. A bearer bond B. A convertible bond C. An indenture D. A subordinated debenture 100% E. A junk bond Score: 2/2 1 2 . A group of investment banks is selling the new bonds of Protech Corp, but the bankers are not promising Protech a set dollar amount from the offering. From this, we know that this is a/an: Student Response Value Correct Answer Feedback A. sinking fund bond B. best efforts offering 100% C. general obligation bond D. firm commitment underwriting. E. private placement Score: 2/2 1 3 . A/an__________________ is issued with a number of different maturity dates. A portion of the overall issue is scheduled to be repaid on each maturity date. Student Response Value Correct Answer Feedback A. serial bond 100% Student Response Value Correct Answer Feedback B. indenture C. debenture D. convertible bond E. term bond Score: 2/2 1 4 . The ___________________ is the contract between the bond issuer and the bond investor Student Response Value Correct Answer Feedback A. subordination agreement B. indenture 100% C. registration statement D. private placement E. debenture Score: 2/2 1 5 . A "revenue bond" is a: Student Response Value Correct Answer Feedback A. corporate bond, designed to help the corporation in times of poor revenue generation. B. U.S. Treasury security, designed to Student Response Value Correct Answer Feedback E. Mortgage globalization Score: 2/2 2 0 . Mortgage payments are _____ on a 15 year fixed rate mortgage than on a 30 year fixed rate mortgage, and _____ is paid on a 15 year mortgage than on a 30 year mortgage, ceteris paribus Student Response Value Correct Answer Feedback A. Lower; less interest B. Lower; less principal C. Higher; less interest 100% D. Higher; more principal E. Higher; more interest Score: 2/2 2 1 . With a fixed rate mortgage the _____ bears the interest rate risk and with an ARM the ______ bears the interest rate risk. Student Response Value Correct Answer Feedback A. Borrower; lender B. Borrower; borrower C. Lender; lender D. Lender; borrower 100% E. Federal government; Student Response Value Correct Answer Feedback pool organizer Score: 2/2 2 2 . You purchase a $255,000 house and you pay 20% down. You obtain a fixed rate mortgage where the annual interest rate is 5.85% and there are 360 monthly payments. What is the monthly payment? Student Response Value Correct Answer Feedback A. $1,215.27 B. $1,203.48 100% C. $1,194.45 D. $1,367.22 E. $1,504.35 Score: 2/2 2 3 . Mortgage fees paid by the homeowner at or prior to closing upon the purchase of a house typically include all but which one of the following: Student Response Value Correct Answer Feedback A. Application fee B. Title search fee C. Title insurance fee D. Appraisal fee E. Prepayment penalty 100% Score: 2/2 2 4 . Common stocks typically have which of the following that bonds do not have: I. Voting rights II. Fixed cash flows III. Set maturity date IV. Tax deductibility of cash flows to investors Student Response Value Correct Answer Feedback A. I only 100% B. I, II and IV only C. II, III and IV only D. IV only E. I, II, III and IV Score: 2/2 2 5 . Advantages of loan sales and securitization typically include all but which one of the following? Student Response Value Correct Answer Feedback A. Reduction in credit risk B. Reduction in interest rate risk C. Increase in liquidity of the balance sheet 0% D. Reduction in regulatory tax burden E. Increase in net interest income Student Response Value Correct Answer Feedback B. FNMA C. FHLMC D. All of the above 100% E. b and c Score: 2/2 3 0 . A/an ________________ is similar to a "pass through" security, but it assigns different combinations of risk and return to various investor groups. Student Response Value Correct Answer Feedback A. HLT loan B. bank loan sale C. CMO 100% D. vulture fund E. loan participation Score: 2/2 3 1 . With a _________________bond, mortgage loans are serving as collateral for the bond, but the bond's interest and principal payments are not necessarily directly connected to the mortgage payments. Student Response Value Correct Answer Feedback A. U.S. Treasury B. corporate C. highly leveraged D. pass through Student Response Value Correct Answer Feedback E. mortgage backed 100% Score: 2/2 3 2 . A significant part of ______________ entails small banks selling off parts of their larger loans to bigger banks. Student Response Value Correct Answer Feedback A. correspondent banking 100% B. securitization C. vulture fund activities D. the commercial paper market Score: 2/2 3 3 . The Government National Mortgage Association is well known for its role in producing: Student Response Value Correct Answer Feedback A. LDC loans B. Brady bonds C. zero coupon bonds D. vulture funds E. pass through securities 100% Score: 2/2 3 4 . With _________ voting, all directors up for election are voted on by the shareholders at the same time in one general election. Student Response Value Correct Answer Feedback A. Straight B. Participating C. Nonparticipating D. Proxy E. Cumulative 100% Score: 2/2 3 5 . The two basic types of corporate stock are: Student Response Value Correct Answer Feedback A. priority and subordinated B. preferred and subordinated C. first lien and subordinated D. debt and equity E. common and preferred 100% Score: 2/2 3 6 . The __________________ feature of common stock means that losses of stockholders are limited to the amount of their original investment. Student Response Value Correct Answer Feedback A. limited liability 100% Student Response Value Correct Answer Feedback access to the commercial paper market D. A and B only 100% E. A, B and C Score: 2/2 4 1 . Advantages of going global for U.S. banks include all but which one of the following? Student Response Value Correct Answer Feedback A. Diversification of earnings B. Greater opportunities to exploit economies of scale C. Greater sources of funds D. onducting business in less regulated environments E. Low fixed costs involved in international expansion 100% Score: 2/2 4 2 . A contingent item that may eventually be placed on the right hand side of the balance sheet or expensed on the income statement is a/an Student Response Value Correct Answer Feedback A. Loan commitment Student Response Value Correct Answer Feedback B. Off balance sheet liability 100% C. Off balance sheet asset D. Net charge off E. Loan sold without recourse Score: 2/2 4 3 . If all preferred dividend payments that have been missed must be paid before any common stock dividend can be paid the preferred stock is called _____ preferred stock. Student Response Value Correct Answer Feedback A. Cumulative 100% B. Participating C. Nonparticipating D. Voting E. Dual class Score: 2/2 4 4 . The preemptive right is designed to Student Response Value Correct Answer Feedback A. Allow management to diffuse stock ownership any voting power B. Allow managers to Student Response Value Correct Answer Feedback preempt a stock offering if they do not like the terms of the deal C. Allow existing shareholders the right to sell their existing shares before the new offer D. Allow existing shareholders to buy shares of the new offering if they desire 100% E. None of the above Score: 2/2 4 5 . Major liabilities for banks include Student Response Value Correct Answer Feedback A. Business loans B. Interest expense paid on deposits C. Deposits 100% D. Equity capital E. Securities held for sale Score: 2/2 4 6 . State chartered banks _____ be members of the Federal Reserve System and nationally . *BONUS* Consider the following Treasury bond data. (The data display is similar to that appearing in Table 6-1 of the text.) Coupon Maturity Bid Asked Asked yield 4.75 Nov 08 109:20 109:21 2.90 If an investor held $10,000 face value of this bond, what is the current asking price of the bond? (Nearest dollar) Student Response Value Correct Answer Feedback A. $10,920 B. $10,921 0% C. $ 9,710 D. $10,855 E. $10,966 Score: 0/1.67 5 2 . The FDIC is concerned about issuance of mortgage backed bonds (MBBs) because Student Response Value Correct Answer Feedback A. The FDIC is concerned about investors' prepayment risk. B. MBBs increase deposit insurance premiums. 0% C. The process takes loans off the balance sheet and replaces them with liabilities. Student Response Value Correct Answer Feedback D. The process reduces the amount of assets available to back insured deposits. Score: 0/1.67 5 3 . If a mortgage pass through experiences large prepayments early on in the life of the security the result will be that pass through holders will receive _______ than expected cash flows early on and _______ than expected cash flows later on. Student Response Value Correct Answer Feedback A. greater; less 100% B. greater; greater C. less; greater D. less; less E. less; same Score: 1.67/1.67 5 4 . In a loan participation, which of the following is/are true? I. The loan buyer has no part in the original underlying credit agreement, even after purchase of the loan. II. If the selling bank fails, the loan buyer's claim against the selling bank may be treated as unsecured. III. In the event the selling bank fails, the original borrower's deposits may be used to reduce the loan amount without any proceeds going to the loan buyer. Student Response Value Correct Answer Feedback A. I only Student Response Value Correct Answer Feedback B. II only 0% C. II and III only D. I and II only E. I, II and III Score: 0/1.67 5 5 . Today Stock A is worth $20 and has 1000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1200 shares outstanding. If tomorrow Stock A is priced at $22, Stock B at $35 and Stock C is worth $48 what would the value weighted index amount equal? (The index has a base period value of 100) Student Response Value Correct Answer Feedback 1. 35.00 2. 105.00 3. 108.44 100% 4. 101.45 5. 102.21 Score: 1.67/1.67 5 6 . You purchase a $1000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert? Student Response Value Correct Answer Feedback 1. $4.50 2. $5.26 0% 3. $6.50