1) _________ and __________ allow a financial intermediary to offer safe, liquid liabilities such as deposits while investing the depositors money in riskier, illiquid assets.
A) Diversification; high equity returns
B) Price risk; collateral
C) Free riders; regulations
D) Monitoring; diversification
E) Primary markets; foreign exchange markets
2. An individual actually earned a 4% nominal return last year. Prices went up by 3% over the year. Given that the investment income was subject to a federal tax rate of 28% and a state and local tax rate of 6%. What was the investor’s actual real after tax rate of return?
A) -0.36%
B) 0.66%
C) 0.72%
D) 1.45%
E) 2.65%
3.) A 10-year annual payment corporate coupon bond has an expected return of 11% and a required return of 10%. The bond’s market price is
A) Greater than its FPV
B) Less than par
C) Less than its Err
D) Less than its FPV
E) $1000.00
4.) A bond that pays interest semiannually has a 6% promised yield and a price of $1045. Annual interest rates are now projected to increase 50 basis points. The bond's duration is 5 years. What is the predicted new bond price after the interest rate change?
A) $1020.35
B) $1069.65
C) $1070.36
D) $1019.64 (explanation: (-5/1.03) × 0.0050 × $1045) + $1045)
E) None of the above
5.) If the Fed wishes to stimulate the economy it could
I. Buy U.S. government securities
II. Raise the discount rate
III. Lower reserve requirements
A) I and III only
B) II and III only
C) I and II only
D) II only
E) I, II and III
6.) Recently, oil prices have risen in the U.S., generating concerns that inflation may increase. If the Fed wishes to ensure that inflation does not get out of hand the Fed could:
A) Intervene in the currency markets to push the value of the dollar down.
B) Decrease the discount rate.
C) Lower the target fed funds rate.
D) Lower the target money supply growth rate.
E) Reduce reserve requirements at banks
7.) Interest bearing retail accounts with limited checking features designed to compete with money market mutual fund investments are called ________________.
A) NOWs
B) Retail CDs
C) MMDAs
D) Special savings deposits
E) Negotiable CDs
8.) An ILC is a type of _______
A) finance company
B) thrift institution
C) credit card bank
D) nonbank bank
E) foreign owned loan corporation
9.) Which one of the following is the definition of the NIM?
A) Net Interest Income – Net Noninterest income / Earning Assets
B) Net Interest Income / Interest Bearing Liabilities
C) Interest Income – Interest Expense / Earning Assets
D) Interest Income – Interest Expense / Interest Bearing Liabilities
E) Interest Income / Earning Assets – Interest Expense / Interest Bearing Liabilities
10.) The reduction in deposit funds cost to an individual bank brought about by government insurance is an example of the ______.
A) Social benefit of regulation
B) Private cost of regulation to DIs
C) Private benefits of regulation to DIs
D) Net regulatory burden
E) None of the above
