1. A ______ is a contract between two participants (counterparties) in which
interest payments are exchanged on a principal (notional) amount.
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| 2. What is the price of a $10,000 U.S.
T-Bill selling at 5.75% discount yield with 20 days until
maturity?
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| 3. Pension funds that may be
administered through bank trust departments must provide for vested
benefits on defined benefit plans. Vesting means:
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| 4. Which of the following reasons for
holding cash has been found to be relatively insensitive to expected
interest rates on invested funds?
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5. As a bank investor paying a marginal
tax rate of 34 percent, if 70 percent of dividends are excludable,
what would be your after-tax dividend yield on preferred bank stock with
a 16 percent before tax dividend yield?
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| 6.Mutual savings banks that choose to
convert from the mutual to the stock form of ownership may have
which of the following objectives in mind?
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7. Assume that a new law is passed which
restricts an investment trust to holding only one asset. A risk averse
trust investor
is considering two possible assets as the asset to be held in isolation.
The assets, possible returns and related probabilities (i.e., the
probability distributions) are as follows:
| Asset X | Asset Y |
| 0.10 . 3% | 0.05 . 3% |
| 0.10 2 | 0.10 2 |
| 0.25 5 | 0.30 5 |
| 0.25 8 | 0.30 8 |
| 0.31 10 | 0.25 10 |
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8. The systematic (market) risk associated
with an individual bank stock is most closely identified with the
_______.
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9. Given that your bank will receive a
$100,000 balloon payment on a commercial loan 15 years from
now, if the interest rate increases, the present value
of the future amount will be
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10. If your bank makes a factory loan for $250,000
and the terms are 20 percent down, the balance to be paid of f over
30 years at a 12 percent rate of interest on the unpaid balance, what
are the 30 equal annual payments?
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11. One of the basic relationships in
interest rate theory is that, other things held constant, for a given
change in the required rate of return, the ___ the time to maturity,
the ______ the change in price.
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12. You intend to purchase a 10-year,
$1,000 face value U.S. Treasury Bond that pays interest of $60 every 6 months. If
your nominal annual required rate of return is 10 percent with semiannual
compounding, how much should you be willing to pay for this bond?
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13. The last dividend on Third National
Bank Corporation's common stock was $4.00, and the expected growth rate is 10 percent.
If you require a rate of return of 20 percent, what is the highest
price you should be willing to pay for this stock?
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14. A bank trust department is contemplating the purchase
of a 20-year bond that pays $50 in interest each six months. You plan
to hold this bond for only 10 years, at which time you will sell it
in the marketplace. Your trust department requires a 12 percent annual return, but you
believe the market will require only an 8 percent return when you
sell the bond 10 years hence. Assuming you are a rational trust investor,
how much should you be willing to pay for the bond today?
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15. Four years ago a bank bought a 10 percent,
10-year bond that paid interest annually. However, this bond was callable
at the end of Year 5 at a price of $1,200. If the current price is
$1,050, what is the bond's yield-to- call at the present time?
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16. The current price of a 10-year, $1,000
par value bond is $1,158.91. Interest on this bond is paid every six
months, and the nominal annual yield is 14 percent. Given these facts,
what is the annual coupon rate on this bond?
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| 17. On February 28, 2003, the Wall
Street Journal contained the following T-Bill quote:
Maturity Days to Maturity Bid
Asked
Sep. 26 '03
210
5.96 5.94
The asked yield, which is the same as the coupon equivalent
yield, is:
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| 18. Suppose you purchased a $1 million
worth of the T-Bills described in question #17. However, on
March 28, 2003 the Wall Street Journal published the
following quote on your T-Bills:
Maturity Days to Maturity Bid
Asked Ask Yld.
Sep. 26 '03 180
5.80 5.78 6.03
If you decide to sell your $1,000,000 worth of T-Bills, you will
make:
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19. If the inflation rate in the United
States is greater than the inflation rate in Sweden, other things
held constant, the Swedish currency will
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20. If one U.S. dollar buys 1.64 German
deutsche marks, how many dollars can you purchase for one German mark?
a. 1.64
b. 3.28
c. 0.61
d. 1.00
e. 0.37
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Dr. Frank Thompson Commercial Bank Management, All rights reserved.
8/12/07
