金融市场有金融机构_试题_双语课程

金融市场有金融机构_试_双语课程 ASSIGNMENT 2 1. MULTIPLE CHOICE 1) The price paid for the rental of borrowed funds (usually expressed as a percentage of the rental of $100 per year) is commonly referred to as the A) inflation rate. B) exchange rate. C) interest rate. D) aggregate price level. Answer: C 2) Financial markets and institutions A) involve the movement of huge quantities of money. B) affect the profits of businesses. C) affect the types of goods and services produced in an economy. D) do all of the above. E) do only (A) and (B) of the above. Answer: D 3) Which of the following can be described as involving direct finance? A) A corporation?s stock is traded in an over-the-counter market. B) People buy shares in a mutual fund. C) A pension fund manager buys commercial paper in the secondary market. D) An insurance company buys shares of common stock in the over-the-counter markets. E) None of the above. Answer: E 4) The purpose of diversification is to A) reduce the volatility of a portfolio?s return. B) raise the volatility of a portfolio?s return. C) reduce the average return on a portfolio. D) raise the average return on a portfolio. Answer: A 5) When the interest rate on a bond is _________ the equilibrium interest rate, there is excess_________ in the bond market and the interest rate will _________. A) below; demand; rise B) below; demand; fall C) below; supply; rise D) above; supply; fall Answer: C 6) In a recession when income and wealth are falling, the demand for bonds _________ and the demand curve shifts to the _________. A) falls; right B) falls; left C) rises; right D) rises; left Answer: B 7) When people begin to expect a large stock market decline, the demand curve for bonds shifts to the _________ and the interest rate _________. A) right; falls B) right; rises C) left; falls D) left; rises Answer: A 8) The spread between interest rates on low quality corporate bonds and U.S. government bonds _________ during the Great Depression. A) was reversed B) narrowed significantly C) widened significantly D) did not change Answer: C 9) If income tax rates were lowered, then A) the interest rate on municipal bonds would fall. B) the interest rate on Treasury bonds would rise. C) the interest rate on municipal bonds would rise. D) the price of Treasury bonds would fall. Answer: C 10) According to the expectations theory of the term structure, A) yield curves should be equally likely to slope downward as to slope upward. B) when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. C) when the yield curve is downward-sloping, short-term interest rates are expected to remain relatively stable in the future. D) all of the above. E) only A and B of the above. Answer:E 11) According to the efficient market hypothesis A) one cannot expect to earn an abnormally high return by purchasing a security. B) information in newspapers and in the published reports of financial analysts is already reflected in market prices. C) unexploited profit opportunities abound, thereby explaining why so many people get rich by trading securities. D) all of the above are true. E) only A and B of the above are true. Answer: E 12) To say that stock prices follow a ?random walk? is to argue that A) stock prices rise, then fall. B) stock prices rise, then fall in a predictable fashion. C) stock prices tend to follow trends. D) stock prices are, for all practical purposes, unpredictable. Answer:D 13) The efficient market hypothesis suggests that A) investors should purchase no-load mutual funds which have low management fees. B) investors can use the advice of technical analysts to outperform the market. C) investors let too many unexploited profit opportunities go by if they adopt a ?buy and hold? strategy. D) only A and B of the above are sensible strategies. Answer: A 14) Which of the following is empirical evidence indicating that the efficient market hypothesis may not always be generally applicable? A) Small-firm effect B) January effect C) Market Overreaction D) All of the above Answer: D 15) An open market purchase of securities by the Fed will A) increase assets of the nonbank public and increase assets of the banking system. B) decrease assets of the nonbank public and increase assets of the Fed. C) decrease assets of the banking system and increase assets of the Fed. D) have no effect on assets of the nonbank public but increase assets of the Fed. E) increase assets of the banking system and decrease assets of the Fed. Answer: D 16) Under usual circumstances, an increase in the discount rate causes A) the federal funds rate to fall. B) the federal funds rate to rise. C) no change in the federal funds rate. D) the supply of reserves to increase. E) the supply of reserves to decrease. Answer: C 17) Which of the following is not an operating target? A) Nonborrowed reserves B) Monetary base C) Federal funds interest rate D) Discount rate E) All are operating targets. Answer: D 18) Money market instruments A) are usually sold in large denominations. B) have low default risk. C) mature in one year or less. D) are characterized by all of the above. E) are characterized by only A and B of the above. Answer: D 19) If the Fed wants to lower the federal funds interest rate, it will _________ the banking system by _________ securities. A) add reserves to; selling B) add reserves to; buying C) remove reserves from; selling D) remove reserves from; buying Answer: B 20) Money market transactions A) do not take place in any one particular location or building. B) are usually arranged purchases and sales between participants over the phone by traders and completed electronically. C) both (a) and (b). D) none the the above. Answer: C 21) The primary reason that individuals and firms choose to borrow long-term is to A) reduce the risk that interest rates will fall before they pay off their debt. B) reduce the risk that interest rates will rise before they pay off their debt. C) reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments. D) reduce total interest payments over the life of the debt. Answer: B 22) Typically, the interest rate on corporate bonds will be _________ the more restrictions are placed on management through restrictive covenants, because _________. A) higher; corporate earnings will be limited by the restrictions B) higher; the bonds will be considered safer by bondholders C) lower; the bonds will be considered safer by buyers D) lower; corporate earnings will be higher with more restrictions in place Answer: C 23) A change in the current yield ______ signals a change in the same direction of the yield to maturity. A) never B) rarely C) always D) often Answer: C 24) A bank?s balance sheet A) shows that total assets equal total liabilities plus equity capital. B) lists sources and uses of bank funds. C) indicates whether or not the bank is profitable. D) does all of the above. E) does only A and B of the above. Answer: E 25) A bank?s largest source of funds is its A) nontransaction deposits. B) checking deposits. C) borrowing from the Fed. D) federal funds. Answer: A 26) In the absence of regulation, banks would probably hold A) too much capital, reducing the efficiency of the payments system. B) too much capital, reducing the profitability of banks. C) too little capital, increasing the return on equity. D) none of the above. Answer: C 2. TRUE OR FALSE 1) Deposits that banks keep in accounts at the Federal Reserve less vault cash is called reserves. False 2) Since a bank?s assets exceed its equity capital, the return on assets always exceeds the return on equity. False 3) Adverse selection refers to those most at risk being most aggressive in their search for funds. True 4) Financial innovation has provided more options to both investors and borrowers. True 5) When the federal government?s budget deficit decreases, the demand curve for bonds shifts to the right. False 6) An increase in the inflation rate will cause the demand curve for bonds to shift to the right. False 7) A positive liquidity premium indicates that investors prefer long-term bonds over short-term bonds. False 8) When yield curves are downward sloping, long-term interest rates are above short-term interest rates. False 9) In an efficient market, abnormal returns are not possible even using inside information. False 10) Technical analysis is a popular technique used to predict stock prices by studying past stock price data and search for patterns such as trends and regular cycles. True 11) An open market sale leads to an expansion of reserves and deposits in the banking system and hence to a decline in the monetary base and the money supply. False 12) Open market purchases by the Fed increase the supply of nonborrowed reserves. True 13) In general, money market instruments are low risk, high yield securities. False 14) Money markets are referred to as retail markets because small individual investors are the primary buyers of money market securities. False 15) Capital market securities are less liquid and have longer maturities than money market securities. True 16) The current yield on a bond is a good approximation of the bond?s yield to maturity when the bond matures in five years or less and its price differs from its par value by a large amount. False 3. Quantitative Problems 1. A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use a discount rate of 6%. Solution: This is a simple present value problem. Using a financial calculator: N , 20; PMT , 500,000; FV , 0; I , 6%; Pmts in BEGIN mode. Compute PV: PV , $6,079,058.25 2. A bank has two, 3-year commercial loans with a present value of $70 million. The first is a $30 million loan that requires a single payment of $37.8 million in 3 years, with no other payments until then. The second is for $40 million. It requires an annual interest payment of $3.6 million. The principal of $40 million is due in 3 years. a. What is the duration of the bank’s commercial loan portfolio? b. What will happen to the value of its portfolio if the general level of interest rates increased from 8% to 8.5%? Solution: The duration of the first loan is 3 years since it is a zero-coupon loan. The duration of the second loan is as follows: Year 1 2 3 Sum Payment 3.60 3.60 43.60 PV of Payments 3.33 3.09 34.61 41.03 Time Weighted PV of Payments 3.33 6.18 103.83 0.08 0.15 2.53 2.76 Time Weighted PV of Payments Divided by Price The duration of a portfolio is the weighted average duration of its individual securities. So, the portfolio’s duration , 3/ 7 ， (3) ， 4/7 ， (2.76) , 2.86 ,i0.005 If rates increased, ,,,，，,,，，,,PPDUR2.8670,000,000926,852.11.08，i 3. Consider a bond that promises the following cash flows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, h old it for 2? years, and then sell the bond. a. What total cash will you receive from the bond after the 2? years? Assume that periodic cash flows are reinvested at 12%. b. If immediately after buying this bond, all market interest rates drop to 11% (including your reinvestment rate), what will be the impact on your total cash flow after 2? years? How does this compare to part (a)? c. Assuming all market interest rates are 12%, what is the duration of this bond? Solution: a. You will receive 160, reinvested that for 1.5 years, and 170 reinvested for 0.5 years. Then you will sell the remaining cash flows, discounted at 12%. This gives you: 1802301.50.5 160(1.12)170(1.12)$733.69.，，，，，,0.51.51.121.12 b. This is the same as part (a), but the rate is now 11%. 1802301.50.5 160(1.11)170(1.11)$733.74.，，，，，,0.51.51.111.11 Notice that this is only $0.05 different from part (a). c. The duration is calculated as follows: Year 1 2 3 4 Sum Payments 160.00 170.00 180.00 230.00 PV of Payments 142.86 135.52 128.12 146.17 552.67 Time Weighted PV of Payments 142.86 271.05 384.36 584.68 0.26 0.49 0.70 1.06 2.50 Time Weighted PV of Payments Divided by Price Since the duration and the holding period are the same, you are insulated from immediate changes in interest rates! It doesn’t always work out this perfectly, but the idea is important. 4. Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table: Years to Maturity Discount Rate Current Price 3 5 3 7 6 7 9 7 9 9 What relationship do you observe between yield to maturity and the current market value? Solution: Years to Maturity Yield to Maturity Current Price 3 5 $1,054.46 3 7 $1,000.00 6 7 $1,000.00 9 5 $1,142.16 9 9 $ 880.10 When yield to maturity is above the coupon rate, the band’s current price is below its face value. The opposite holds true when yield to maturity is below the coupon rate. For a given maturity, the bond’s current price falls as yield to maturity rises. For a given yield to maturity, a bond’s value rises as its maturity increases. When yield to maturity equals the coupon rate, a bond’s current price equals its face value regardless of years to maturity. 5. At your favorite bond store, Bonds-R-Us, you see the following prices: a. 1-year $100 zero selling for $90.19 b. 3-year 10% coupon $1000 par bond selling for $1000 c. 2-year 10% coupon $1000 par bond selling for $1000 Assume that the pure expectations theory for the term structure of interest rates holds, no liquidity or maturity premium exists, and the bonds are equally risky. What is the implied 1-year rate two years from now? Solution: From (a), you know that the 1-year rate today is 10.877%. Using this information, (c) tells you that: 21000 , 100/1.10877 ， 1100/(1 ， 2-year rate) So, the 2-year rate today is 9.95%. Using these two rates, (b) tells you that: 231000 , 100/1.10877 ， 100/1.0995 ， 1100/(1 ， 3-year rate) So, the 3-year rate today is 9.97% 1-year rate 2 years from now , (3 ， 9.97% – 2 ， 9.95%) , 10.01% 6. One year T-bill rates over the next 4 years are expected to be 3%, 4%, 5%, & 5.5%. If 4-year T-bonds are yielding 4.5%, what is the liquidity premium on this bond? Solution: 4.5% , (3% ， 4% ， 5% ， 5.5%)/4 ， LP 4.5% , 4.375% ， LP 0.125% , LP 7. According to the loanable funds frameworks, draw two figures to explain the changes of interest rates during expansion and recession.