Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business 171B > Busines 171B - Midterm 2 > Flashcards

Busines 171B - Midterm 2 Flashcards

1
Q 
Which ratios does a bank want to increase, decrease or stay flat, to optimize financial performance?
Efficiency Ratio
Loans per Employee
Average Personnel Expense
Expense Ratio
ROA
ROE
NIM
Burden Ratio
A 
Efficiency Ratio - Decrease
Loans per Employee - Increase
Average Personnel Expense - Decrease
Expense Ratio - Decrease
ROA - Increase
ROE - Increase
NIM - Increase
Burden Ratio - Stay Flat
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q 
For each of the following revenue sources, choose whether it's generally common to all commercial banks or just typical of large, diversified banks:
Loan servicing fees
Proprietary trading profits
Deposit service charges
Revenue from sale of loans
Securitization income
Investment banking
Deposit service charges
A 
Loan servicing fees - Most banks
Proprietary trading profits - Large only
Deposit service charges - Most banks
Revenue from sale of loans - Most banks
Securitization income - Large only
Investment banking - Large only
Deposit service charges - Most banks
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

A four year coupon bond with a par value of $1000 that pays interest semiannually is trading at a current price of $1300. You buy the bond expecting to hold it to maturity What is the annualized discount rate the market is using to value the bond?

A

0.43%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

If a bank has a GAP ratio < 1.0, it will most benefit over the short term by what type of rate environment?

     * Falling rates
     * Flat rates
     * Rising Rates
A

Falling rates

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

A bank has a $2mm loan outstanding payable in four equal quarterly installments. What dollar amount of the loan would be considered rate sensitive in the 0 - 180 day bucket? (assume a 360 day year calculation basis)

A

$1,000,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

If a bank has an EM ratio of 2.5, then for every 1% its ROA increases, its ROE will…

  • increase 1%
  • not be affected
  • increase 2.5%
  • decrease 2.5%
  • decrease 1%
A

Increase 2.5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Long term bonds have proportionately ____ change in price in compared to short term bonds for a given rate change, everything else being the same.

  • Smaller
  • Zero
  • Indeterminate
  • Equal
  • Greater
A

Greater

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Which of the following will increase a bank’s Cumulative $ GAP
* Reinvesting cash in fixed rate securities such as T-Bills as loans mature
* Making longer term loans rather than shorter term loans
* Issuing bonds to fund new loans instead of soliciting more demand deposits
* Making more floating rate loans as fixed rate loans mature
*

A

Issuing bonds to fund new loans instead of soliciting more demand deposits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Given a 1% change in interest rates, the percentage change in a bond’s price will be approximately…

  • Equal to the Modified Duration, expressed as a percentage
  • Equal to the Macaulay Duration, expressed as a percentage
  • Equal to the bond’s Yield, expressed as a percentage
  • Equal to the bond’s Coupon Rate, expressed as a percentage
A

Equal to the Modified Duration, expressed as a perentage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

For the same coupon rate and time to maturity, the percentage price change of a bond is greater in absolute value when the discount rate…

  • Goes up
  • Is flat
  • Goes down
  • Is higher than the inflation rate
A

Goes down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

A bond with a lower coupon will have a ____ change in price compared to a bond with a higher coupon rate for a given rate change, everything else being the same.

  • Equal
  • Zero
  • Greater
  • Smaller
  • Indeterminate
A

Greater

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If RSAs equal $500mm and RSLs equal $400mm, what is the expected change in Net Interest Income if rates increase by 2%?

  • Net interest income will fall by $10mm
  • Net interest income will increase by $10mm
  • Net interest income will fall by $2mm
  • Net interest income will increase by $8mm
  • Net interest income will increase by $2mm
A

Net interest income will increase by $2mm

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Calculate the bank’s NIM given the following balance sheet assumptions:
$500mm in excess cash deposited at the Federal Reserve earning 1% interest
$4 billion of Loans to Customers averaging 5% interest rate
$500 mm in Net Property Plan & Equipment
$1 billion in Intangible Assets
$1 billion in Demand Deposits
$500mm in interest bearing deposits at an average rate of 2%
$500mm in long term debt at 3% interest rate
$500 million on common equity
* 4.0%
* 5.0%
* 6.0%
*0.7%
* 3.4%
* 3.0%
1.0%

A

4.0%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Which of the following will increase a bank’s net interest income?

  • giving borrowers lower rates on loans
  • offering depositors higher rates on CDs
  • adding more fees to checking accounts
  • investing its excess cash in higher yield bonds
  • reducing payroll costs
A

investing its excess cash in higher yield bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the Economic Value of Equity for a bank with the following assumptions:
Total Book Value of Assets $4 billion
Total Market Value of Assets $5 billion
Total Risk Sensitive Assets $2.5 billion
Total Book Value of Liabilities $3.5 billion
Total Market Value of Liabilities $3 billion
Total Risk Sensitive Liabilities $1 billion
Total Book Value of Equity $500 million
Total Market Value of Equity $1 billion

A
  • $5 billion
  • $3.5 billion
  • $500 million
  • $2 billion
  • $7.5 billion
  • $1.5 billion
  • $8 billion
  • 1 billion
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

A bond with an annual coupon rate of 15% and a par value of $1000 has two years to maturity. If the current discount rate is 8%, what is the bond’s Macaulay’s Duration? (round to 2 decimal places)

  • 1.77 years
  • 2.00 years
  • 1.90 years
  • 1.87 years
  • 1.60 years
A

1.87 years

17
Q 
Calculate the bank's Efficiency Ratio given the following assumptions:
RSAs $4 billion
RSLs $3.5 billion
Interest Income $150 million
Interest Expense $50 million
NonInterest Income $50 million
NonInterest Espense $100 million
A

0.67

18
Q

As interest rates rise, existing bond prices…

  • Increase
  • Mimic the Prime Rate
  • Do not change
  • Decrease
  • Mimic the Fed Funds Rate
A

Decrease

19
Q

If a banks ALCO believes that market rates will be steadily rising, which of the following directions would it make sense to pursue:

  • Increase Liability Sensitivity, Increase DGAP
  • Buy Zero Coupon Bonds, promote long term fixed rate Certificate of Deposits
  • Reduce RSAs and increase their Maturity
  • Increase Asset Sensitivity, Decrease DGAP
  • Increase RSLs and Reduce their Maturity
A

Increase Asset Sensitivity, Decrease DGAP

Business 171B (6 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions