FIN INTERMEDIARIES quiz notes

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QUIZ 8 EVE analysis: is essentially a _____________ analysis. liquidation Duration gap analysis: Correct! applies he the concept of duration to the bank’s entire balance sheet. A bond has a Macaulay's duration of 7.1 years. If interest rates change from 9.04% to 7.81%, what should the percent change be in the bond price? Since I have not specified the actual term, interest rates, or anything else, please use the modified duration formula to approximate the answer. Please respond without the percent sign. If you calculate that the price will increase by 13.45%, then enter 13.45 without the % sign. And make sure the sign is correct (positive or negative matter). Correct! Correct Answer -8.01 A bond has a Macaulay's duration of 3.5 years. If interest rates change from 11.11% to 6.82%, what should the percent change be in the bond price? Since I have not specified the actual term, interest rates, or anything else, please use the modified duration formula to approximate the answer. Please respond without the percent sign. If you calculate that the price will increase by 13.45%, then enter 13.45 without the % sign. And make sure the sign is correct (positive or negative matter). You Answered Correct Answer -13.51 Assume we have a 10 year 8.88% coupon bond selling for $1,000 and callable at par with semi-annual compounding. What would be the effective duration if the interest rates could change by 50 basis points (annually)? Please enter your answer to the nearest hundredth (in other words if you calculate a duration of 1.23456 years, you must enter at least 1.23). You Answered Correct Answer 6.4 margin of error +/- 0.05

Assume we have a 13 year 11.10% coupon bond selling for $1,000 and callable at par with semi-annual compounding. What would be the effective duration if the interest rates could change by 50 basis points (annually)? Please enter your answer to the nearest hundredth (in other words if you calculate a duration of 1.23456 years, you must enter at least 1.23). You Answered Correct Answer 6.63 Which of the following allows a security's cash flows to change when interest rates change? Effective duration The steps to conducting a Duration GAP are: 1. 1. Forecast interest rates. 2. Forecast interest rates. 3. Forecast changes in EVE across different interest rate environments. 4. Forecast changes in EVE across different interest rate environments. Answer 1: Forecast interest rates. Answer 2: Forecast interest rates. Answer 3: Forecast changes in EVE across different interest rate environments. Answer 4: Forecast changes in EVE across different interest rate environments. Which of the following is false regarding duration gap analysis? Duration gap analysis indicates the potential change in a bank's net interest income.

A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 85 1-yr Time deposit 565 3.4% 0.9 3-yr Commercial loan 733 11.0% 1.6 3-yr CD 202 3.2% 2.6 6-yr Treasury bond 191 4.2% 3.8 Equity ??? ???? ???? What is the weighted average duration of assets ? Correct Answer 1.9 A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 120 1-yr Time deposit 10 4.7% 0.6 3-yr Commercial loan 714 11.4% 1.8 3-yr CD 5 6.9% 2.7 6-yr Treasury bond 238 8.7% 4.3 Equity ??? ???? ???? What is the weighted average duration of liabilities ? Please answer to the nearest hundredth (if you calculate 1.23456, then you must answer at least to the 1.23 level). Correct! Correct Answer 1.3 A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 111 1-yr Time deposit 502 5.0% 0.6 3-yr Commercial loan 744 8.1% 2.4 3-yr CD 179 7.0% 3.0 6-yr Treasury bond 238 6.5% 4.6 Equity ??? ???? ????

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What is the bank's duration gap ? Please answer to the nearest hundredth (if you calculate 1.23456, then you must answer at least to the 1.23 level). Correct! Correct Answer 1.87 A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 107 1-yr Time deposit 580 3.2% 0.6 3-yr Commercial loan 611 11.5% 2.5 3-yr CD 209 6.0% 2.9 6-yr Treasury bond 176 4.4% 4.3 Equity ??? ???? ???? What is the weighted average duration of assets ? Correct! Correct Answer 2.6 A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 85 1-yr Time deposit 3 3.6% 0.9 3-yr Commercial loan 649 9.8% 1.6 3-yr CD 5 4.9% 2.8 6-yr Treasury bond 204 6.9% 5.5 Equity ??? ???? ???? What is the weighted average duration of liabilities ? Please answer to the nearest hundredth (if you calculate 1.23456, then you must answer at least to the 1.23 level). Correct! Correct Answer 2.09 A bank has the following balance sheet: ASSETS Market Value Yield Duration LIAB. & EQUITY Market Value Yield Duration Cash 98 1-yr Time deposit 581 3.3% 0.6 3-yr Commercial loan 789 10.9% 1.8 3-yr CD 173 4.6% 2.8 6-yr Treasury bond 246 6.6% 5.8 Equity ???

???? ???? What is the bank's expected economic net interest income ? Please answer to the nearest hundredth (if you calculate 1.23456, then you must answer at least to the 1.23 level). You Answered Correct Answer 75.11 If a bank has calculated their duration GAP to be 2.59, as interest rates decrease what would you expect to happen? The market value of their assets will increase. The market value of their liabilitieis will also increase, but not as much as their assets. And therefore, the economic value of their equity will increase. If a bank has calculated their duration GAP to be -1.77, as interest rates increase what would you expect to happen? The market value of their assets will decrease. The market value of their liabilities will also decrease, and will decrease more than that of their assets. And therefore, the economic value of their equity will increase. Which of the following will not affect a bank’s duration estimate for the year? Holding a 2 year zero coupon bond until maturity. If the yield curve is inverted, a portfolio manager can take advantage of this by: buying more long-term securities. To perfectly immunize a bank’s economic value of equity from changes in interest rate risk, it should: adjust assets and liabilities such that its duration gap is equal to zero. Which of the following is NOT a weakness of duration gap analysis? It is difficult to estimate the duration on zero coupon bonds.

Chapter 6 quiz You are an art investor. You just purchased a painting from a famous artist. You paid $9,780,859 for that painting. The collector from which you bought the painting claims to have held the painting for 23 years. She claims she earned a return of 33.90% per year. What did she pay for the painting 23 years ago? Please enter your response to the nearest penny. Correct! Correct Answer 11,869.26 Chapter 10 ___________ includes federal funds purchased, repurchase agreements and Federal Home Loan Bank borrowings. Correct! Borrowed funding All of the following are considered transaction accounts except : negotiable orders of withdrawal. On-us checks cashed are: checks drawn on a bank's own customer's account. High interest rates in the late 1990’s on large CDs lead to the introduction of: callable CDs. A bank estimates that their average balance on demand deposit accounts is $1,624, net of float. Each account costs the bank $179 per year in processing costs. The bank collects an average of $8.33 per month on each account in service charges. Assume reserve requirements are 10%. What is the net cost of an average demand deposit? Correct! Correct Answer

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11.68 In regards to repurchase agreements, the margin is: the difference between the market value of the collateral and the amount of the loan. A primary difference between "intelligent" smart cards and "memory" smart cards is that: memory cards can only store information. ___________ includes transaction accounts, MMDAs, savings accounts and small time deposits. Retail funding Which of the following would not be considered "hot money"? Retail demand deposits Which of the following is true regarding money market deposit accounts (MMDAs)? A maximum of three checks per month may be written on a MMDA account. Overdraft fees: represent a risk charge. Large depositors [ check all that apply ]: often get free checking. receive more personalized service. receive the highest interest rates. CDs sold at a steep discount from par and appreciate to face value at maturity are known as: zero coupon CDs. A bank estimates that their average balance on demand deposit accounts is $1,823, net of float. Each account costs the bank $146 per year in processing costs. The bank collects an average of

$5.29 per month on each account in service charges. Assume reserve requirements are 10%. What is the net cost of an average demand deposit? ered 8.58 A brokered deposit would most likely take which of the following forms? Jumbo CDs Federal funds: can only be traded by banks. Which of the following is primarily used as collateral for borrowings from the Federal Home Loan Bank Board? Real estate loans Liquidity risk is a function of many factors. Which of the following is NOT one of those factors? Funding sources. Given the marginal cost estimates associated with obtaining additional interest-checking account funding in the table below, what is the estimated marginal cost of obtaining additional interest-checking balances? [ Please respond in percent without the "%" sign at the end - e.g. if the answer is 12.35%, just respond with 12.35. ] Market interest rate 2.00% Servicing costs (as % of balance) 1.88% Acquisition costs (as % of balance) 0.43% Deposit insurance costs (as % of balance) 0.22% Net investable balance 84.45% Correct! Correct Answer 5.36 Question 12 0 / 9 pts

Given the marginal cost estimates associated with obtaining additional interest-checking account funding in the table below, what is the estimated marginal cost of obtaining additional interest-checking balances? [ Please respond in percent without the "%" sign at the end - e.g. if the answer is 12.35%, just respond with 12.35. ] Market interest rate 2.32% Servicing costs (as % of balance) 2.12% Acquisition costs (as % of balance) 0.78% Deposit insurance costs (as % of balance) 0.34% Required reserves 10.00% Float 5.39% You Answered Correct Answer 6.57 All of the following are true about Federal Home Loan Bank (FHLB) advances except: Because the FHLB is a government agency, FHLB advances are available to all banks that pay taxes. Liability management decisions determines all ________ following except: Loan rates

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