FI 412 University of Alabama test 1 Questions AND Correct
Answers
- ✔✔A long term loan secured by real estate
- an amortized loan whereby a fixed payment pays both
interest and principle each period
2007-2009 Crisis - ✔✔subprime loans made based off
the idea that housing prices will increase forever
A corporation acquires new funds only when its
securities are sold in the - ✔✔primary market by an
investment bank.
A discount loan by the Fed to a bank causes a(n)
________ in reserves in the banking system and a(n)
________ in the monetary base - ✔✔increase; increase
A letter of credit is a service that banks provide to firms
to ______ - ✔✔manage risk
,A perpetuity pays you $200 each year forever. If the
price of this perpetuity now is $4,000, what is the yield
to maturity for this loan? - ✔✔5%
A three-month Eurodollar futures contract - ✔✔is a
futures contract on the interest that will be paid on $1
million Eurodollar for a future three-month period.
According to the expectations theory of the term
structure - ✔✔interest rates on bonds of different
maturities move together over time.
According to the expectations theory of the term
structure, - ✔✔when the yield curve is steeply upward-
sloping, short-term interest rates are expected to rise in
the future.
B) when the yield curve is downward-sloping, short-
term interest rates are expected to decline in the
future.
,Adjustable rate mortgage - ✔✔interest rate is tied to
another security and is adjusted periodically
An open market sale of securities by the Fed will -
✔✔decrease liabilities of the Fed and not affect assets
of the banking system
are debt contracts complicated legal contracts? - ✔✔yes
Are dividends tax deductible? - ✔✔no
Are NCDs liquid? - ✔✔yes
Are treasury bill interest rates higher than treasury bill
inflation rates? - ✔✔yes
Bad drivers like to buy collision insurance for their car -
✔✔Adverse Selection
, Banks are required to hold a percentage of ____ on
reserve at a Federal Reserve Bank. - ✔✔transaction
Deposits
Borrower Qualification - ✔✔credit history, employment
history, etc... to determine borrowers credibility. ex)
FICO
Call provisions will be exercised when interest rates
________ and bond values ________. - ✔✔fall; rise
Callable bonds usually have a higher yield than
comparable non-callable bonds. - ✔✔true
Car renters drive recklessly when they purchased
insurance from the rental agencies - ✔✔Moral Hazard
Cash flow of a LIBOR floater is... - ✔✔the LIBOR from
the year before
Answers
- ✔✔A long term loan secured by real estate
- an amortized loan whereby a fixed payment pays both
interest and principle each period
2007-2009 Crisis - ✔✔subprime loans made based off
the idea that housing prices will increase forever
A corporation acquires new funds only when its
securities are sold in the - ✔✔primary market by an
investment bank.
A discount loan by the Fed to a bank causes a(n)
________ in reserves in the banking system and a(n)
________ in the monetary base - ✔✔increase; increase
A letter of credit is a service that banks provide to firms
to ______ - ✔✔manage risk
,A perpetuity pays you $200 each year forever. If the
price of this perpetuity now is $4,000, what is the yield
to maturity for this loan? - ✔✔5%
A three-month Eurodollar futures contract - ✔✔is a
futures contract on the interest that will be paid on $1
million Eurodollar for a future three-month period.
According to the expectations theory of the term
structure - ✔✔interest rates on bonds of different
maturities move together over time.
According to the expectations theory of the term
structure, - ✔✔when the yield curve is steeply upward-
sloping, short-term interest rates are expected to rise in
the future.
B) when the yield curve is downward-sloping, short-
term interest rates are expected to decline in the
future.
,Adjustable rate mortgage - ✔✔interest rate is tied to
another security and is adjusted periodically
An open market sale of securities by the Fed will -
✔✔decrease liabilities of the Fed and not affect assets
of the banking system
are debt contracts complicated legal contracts? - ✔✔yes
Are dividends tax deductible? - ✔✔no
Are NCDs liquid? - ✔✔yes
Are treasury bill interest rates higher than treasury bill
inflation rates? - ✔✔yes
Bad drivers like to buy collision insurance for their car -
✔✔Adverse Selection
, Banks are required to hold a percentage of ____ on
reserve at a Federal Reserve Bank. - ✔✔transaction
Deposits
Borrower Qualification - ✔✔credit history, employment
history, etc... to determine borrowers credibility. ex)
FICO
Call provisions will be exercised when interest rates
________ and bond values ________. - ✔✔fall; rise
Callable bonds usually have a higher yield than
comparable non-callable bonds. - ✔✔true
Car renters drive recklessly when they purchased
insurance from the rental agencies - ✔✔Moral Hazard
Cash flow of a LIBOR floater is... - ✔✔the LIBOR from
the year before
