Exam 10: The Investment Function in Financial-Services Management

A bond has eight years to maturity and a coupon rate of 6.5 percent.Coupon payments are made annually and the bond has a face value of $1,000.This bond is currently selling in the market for $862.What is the yield-to-maturity on this bond?

A bank replaces 5-year corporate bonds with a coupon rate of 9.75 percent with 5-year municipal bonds with a coupon rate of 7 percent.The bank is in the 35 percent tax bracket and these bonds have the same default risk.What is the most likely reason the bank changed from the corporate to the municipal bonds?

Suppose a bank has found bank-qualified municipal bonds which have a nominal gross rate of return of 8 percent and that it can borrow funds needed for this purchase at a rate of 6.25 percent.The bank is in the 35 percent tax bracket.What is the net after-tax return on this bond?

The principal risk banks face from investing in structured notes is credit (default)risk.

The principal risk to a financial institution buying CMOs is market risk.

Pools of mortgages put together,either by a government agency or by a private investment banking corporation,to raise more loanable funds for the issuer are known as a(n):

A(n)_________________________ is one where the interest portion of a security is sold separately from the principal portion.

A(n)_________________________ is a security issued by the federal government which has less than one year to maturity when it is issued.

Bank income from loans is usually taxable.

_________________________ are imposed by the federal,state,and local governments to guarantee the safety of their deposits with banks.

________________ are time deposits of fixed maturity issued by the world's largest banks,headquartered in financial centers around the globe.The heart of this market is in London.

According to the textbook,a majority of securities held in U.S.banks' investment portfolios are state and local government bonds.

Bankers' acceptances are considered to be among the safest of all money market instruments.

A financial institution that is concerned about the possibility that the purchasing power of both the interest income and repaid principal on a loan will decline is concerned about which of the following?

The Lancaster State Bank is thinking about purchasing a corporate bond that pays a coupon of 8.5%.The bank has a marginal tax rate of 25%.What is the after-tax yield on this bond?

The Goodknight Company has issued securities with 45 days to maturity.What type of security has it issued?

The Roy State Bank has just purchased a portfolio of asset-backed securities.What type of risk do these securities have that other securities do not have?

The Farmer National Bank has purchased a bond that has a coupon rate of 11.5% and a face value of $1000.It has 16 years to maturity and is currently selling in the market for $1309.80.The bond makes annual coupon payments.The Farmer National Bank plans on selling this bond at the end of 8 years for $1071 (ex-interest).What is the holding period return on this bond?

Prepayment risk on securitized assets generally increases when interest rates rise.

Securities sold by Fannie Mae,Freddie Mac,and other similar agencies owned or sponsored by the federal government are known as ________________________.