The following represents two yield curves. $\begin{array} { | l r r | } \hline \text { Maturity } & \text { Pure Discount Treasury Yields } & \text { B-rated Carparate Band } \\ \hline & & \text { Yields (Pure Discaun Bonds) } \\ 1 \text { year } & 3 \text { percent } & 6\text { percent }\\ 2 \text { year } & 6 \text { percent }& 10 \text { percent } \\ 20 \text { year } & 12 \text { percent }& 17 \text { percent } \\ \hline \end{array}$ -If the cumulative mortality rate in year 3 is 3.46 percent for the B-rated loan,what is its yearly mortality rate in year 3?

A) 1.25 percent. B) 1.21 percent. C) 1.00 percent. D) 0.90 percent. A) 1.25 percent. B) 1.21 percent. C) 1.00 percent. D) 0.90 percent.

The following represents two yield curves. $\begin{array} { | l r r | } \hline \text { Maturity } & \text { Pure Discount Treasury Yields } & \text { B-rated Carparate Band } \\ \hline & & \text { Yields (Pure Discaun Bonds) } \\ 1 \text { year } & 3 \text { percent } & 6\text { percent }\\ 2 \text { year } & 6 \text { percent }& 10 \text { percent } \\ 20 \text { year } & 12 \text { percent }& 17 \text { percent } \\ \hline \end{array}$ -What is the implied probability of repayment on one-year B-rated debt?

A) 95.00 percent. B) 97.17 percent. C) 94.00 percent. D) 97.00 percent. A) 95.00 percent. B) 97.17 percent. C) 94.00 percent. D) 97.00 percent.

Using a modified discriminant function similar to Altman's,Burger Bank estimates the following coefficients for its portfolio of loans: Z = 1.4X1 + 1.09X2 + 1.5X3 where X1 = debt to asset ratio;X2 = net income and X3 = dividend payout ratio. What is the Z-score if the debt to asset ratio is 40 percent,net income is 12 percent,and the dividend payout ratio is 60 percent?

A) 1.59. B) 1.48. C) 1.36. D) 1.28. A) 1.59. B) 1.48. C) 1.36. D) 1.28.

Exam 10: Credit Risk: Individual Loan Risk

The following represents two yield curves. Maturity Pure Discount Treasury Yields B-rated Carparate Band Yields (Pure Discaun Bonds) 1 year 3 percent 6 percent 2 year 6 percent 10 percent 20 year 12 percent 17 percent -If the cumulative mortality rate in year 3 is 3.46 percent for the B-rated loan,what is its yearly mortality rate in year 3?

(Multiple Choice)

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Question 61

Which of the following loan applicant characteristics is not relevant in the credit approval decision?

(Multiple Choice)

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Question 62

The following represents two yield curves. Maturity Pure Discount Treasury Yields B-rated Carparate Band Yields (Pure Discaun Bonds) 1 year 3 percent 6 percent 2 year 6 percent 10 percent 20 year 12 percent 17 percent -What is the implied probability of repayment on one-year B-rated debt?

(Multiple Choice)

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Question 63

The primary difficulty in arranging a syndicated loan is having all of the various lending and borrowing parties reach agreement on terms,rates,and collateral.

(True/False)

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Question 64

Recessionary phases in the business cycle typically cause greater hardship on companies that borrow large amounts.

(True/False)

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Question 65

Cumulative default probability refers to

(Multiple Choice)

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Question 66

Since their introduction,the proportion of adjustable rate mortgages (ARMs)to fixed-rate residential mortgages has remained very stable over interest rate cycles.

(True/False)

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Question 67

Simulations conducted by Moody's Analytics have shown that expected default frequency (EDF)models outperform Z-score type models in predicting borrower failure or financial distress.

(True/False)

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Question 68

Credit risk applies only to bond investment and loan portfolios of depository institutions and other FIs.

(True/False)

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Question 69

According to Altman's credit scoring model,which of the following Z scores would indicate a low default risk firm?

(Multiple Choice)

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Question 70

Which of the following factors may affect the promised return an FI receives on a loan?

(Multiple Choice)

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Question 71

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually): -The duration of a soon to be approved loan of $10 million is four years.The 99^th percentile increase in risk premium for bonds belonging to the same risk category of the loan has been estimated to be 5.5 percent. If the minimum RAROC acceptable to the bank is 8 percent,what should be its expected percentage fee income in order for it to approve the loan?

(Multiple Choice)

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Question 72

Revolving loans are credit lines

(Multiple Choice)

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Question 73

Using a modified discriminant function similar to Altman's,Burger Bank estimates the following coefficients for its portfolio of loans: Z = 1.4X₁ + 1.09X₂ + 1.5X₃ where X₁ = debt to asset ratio;X₂ = net income and X₃ = dividend payout ratio. What is the Z-score if the debt to asset ratio is 40 percent,net income is 12 percent,and the dividend payout ratio is 60 percent?

(Multiple Choice)

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Question 74

Default by a large corporation is seldom a problem for FIs since these corporations have many different sources of borrowed funds.

(True/False)

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Question 75

Which of the following statements does not reflect a borrower-specific factor often used in qualitative default risk models?

(Multiple Choice)

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Question 76

From the perspective of an FI,which of the following is an advantage of a floating-rate loan?

(Multiple Choice)

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Question 77

The exact interest rate to be charged on a fixed-rate loan is agreed upon by all parties at the time the commitment is negotiated.

(True/False)

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Question 78

The mortality rate measures the past default experience of all loans,regardless of quality.

(True/False)

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Question 79

The traditional duration equation can be used to measure the capital at risk of a loan.

(True/False)

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Question 80

Showing 61 - 80 of 119

Exam 10: Credit Risk: Individual Loan Risk

Which of the following loan applicant characteristics is not relevant in the credit approval decision?

The following represents two yield curves. Maturity Pure Discount Treasury Yields B-rated Carparate Band Yields (Pure Discaun Bonds) 1 year 3 percent 6 percent 2 year 6 percent 10 percent 20 year 12 percent 17 percent -What is the implied probability of repayment on one-year B-rated debt?

The primary difficulty in arranging a syndicated loan is having all of the various lending and borrowing parties reach agreement on terms,rates,and collateral.

Recessionary phases in the business cycle typically cause greater hardship on companies that borrow large amounts.

Cumulative default probability refers to

Since their introduction,the proportion of adjustable rate mortgages (ARMs)to fixed-rate residential mortgages has remained very stable over interest rate cycles.

Simulations conducted by Moody's Analytics have shown that expected default frequency (EDF)models outperform Z-score type models in predicting borrower failure or financial distress.

Credit risk applies only to bond investment and loan portfolios of depository institutions and other FIs.

According to Altman's credit scoring model,which of the following Z scores would indicate a low default risk firm?

Which of the following factors may affect the promised return an FI receives on a loan?

Revolving loans are credit lines

Default by a large corporation is seldom a problem for FIs since these corporations have many different sources of borrowed funds.

Which of the following statements does not reflect a borrower-specific factor often used in qualitative default risk models?

From the perspective of an FI,which of the following is an advantage of a floating-rate loan?

The exact interest rate to be charged on a fixed-rate loan is agreed upon by all parties at the time the commitment is negotiated.

The mortality rate measures the past default experience of all loans,regardless of quality.

The traditional duration equation can be used to measure the capital at risk of a loan.

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