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 probability that two-year B-rated corporate debt will be fully repaid?

A) 92.9 percent. B) 95.6 percent. C) 97.2 percent. D) 7.10 percent. A) 92.9 percent. B) 95.6 percent. C) 97.2 percent. D) 7.10 percent.

Exam 10: Credit Risk: Individual Loan Risk

Because of compensating balances and fees used to increase return on a loan,the credit risk premium is not the fundamental factor driving the promised return once the base rate on the loan has been set.

(True/False)

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Question 101

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually): -The cumulative probability of repayment of BBB corporate debt over the next two years is

(Multiple Choice)

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Question 102

Commercial paper has become an acceptable substitute source for bank loans for many large corporations.

(True/False)

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Question 103

Long-term loans are more likely to be made under a loan commitment agreement than short-term loans.

(True/False)

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Question 104

Credit rationing by an FI

(Multiple Choice)

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Question 105

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually): -Calculate the value of y (the implied forward rate on one-year maturity BBB corporate debt to be delivered in one year).

(Multiple Choice)

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Question 106

The probability that a borrower would default in any specific time period is the marginal default probability.

(True/False)

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Question 107

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 fee income on this loan is 0.4 percent and the spread over the cost of funds to the bank is 1 percent,what is the expected income on this loan for the current year?

(Multiple Choice)

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Question 108

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. What is the capital (loan)risk of the loan if the current average level of interest rates for this category of bonds is 12 percent?

(Multiple Choice)

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Question 109

Which of the following is NOT characteristic of the consumer loans at U.S.banks?

(Multiple Choice)

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Question 110

Which of the following observations concerning floating-rate loans is NOT true?

(Multiple Choice)

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Question 111

At some point,further increases in interest rates on specific loans may decrease expected loan returns because of increased probability of default by the borrower.

(True/False)

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Question 112

Which of the following is NOT characteristic of the real estate portfolio for most banks?

(Multiple Choice)

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Question 113

Which of the following is the major weakness of the linear probability model?

(Multiple Choice)

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Question 114

What is the least important factor determining bankruptcy,according to the Altman Z-score model?

(Multiple Choice)

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Question 115

A major advantage of discriminant models to assess the credit risk of a customer is the stability of the coefficient weights over time.

(True/False)

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Question 116

Risk-adjusted return on capital (RAROC)models serve as both a credit risk measure and a pricing tool for a loan officer.

(True/False)

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Question 117

Unsecured debt is considered to be senior to secured debt.

(True/False)

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Question 118

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 probability that two-year B-rated corporate debt will be fully repaid?

(Multiple Choice)

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Question 119

Showing 101 - 119 of 119

Exam 10: Credit Risk: Individual Loan Risk

Because of compensating balances and fees used to increase return on a loan,the credit risk premium is not the fundamental factor driving the promised return once the base rate on the loan has been set.

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually): -The cumulative probability of repayment of BBB corporate debt over the next two years is

Commercial paper has become an acceptable substitute source for bank loans for many large corporations.

Long-term loans are more likely to be made under a loan commitment agreement than short-term loans.

Credit rationing by an FI

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually): -Calculate the value of y (the implied forward rate on one-year maturity BBB corporate debt to be delivered in one year).

The probability that a borrower would default in any specific time period is the marginal default probability.

Which of the following is NOT characteristic of the consumer loans at U.S.banks?

Which of the following observations concerning floating-rate loans is NOT true?

At some point,further increases in interest rates on specific loans may decrease expected loan returns because of increased probability of default by the borrower.

Which of the following is NOT characteristic of the real estate portfolio for most banks?

Which of the following is the major weakness of the linear probability model?

What is the least important factor determining bankruptcy,according to the Altman Z-score model?

A major advantage of discriminant models to assess the credit risk of a customer is the stability of the coefficient weights over time.

Risk-adjusted return on capital (RAROC)models serve as both a credit risk measure and a pricing tool for a loan officer.

Unsecured debt is considered to be senior to secured debt.

Why Are Financial Institutions Special

Financial Services: Depository Institutions

Financial Services: Finance Companies

Financial Services: Securities Firms and Investment Banks

Financial Services: Mutual Fund and Hedge Fund Companies

Financial Services: Insurance Companies

Risks of Financial Institutions

Interest Rate Risk I

Interest Rate Risk II

Credit Risk: Loan Portfolio and Concentration Risk

Liquidity Risk

Foreign Exchange Risk

Sovereign Risk

Market Risk

Off-Balance-Sheet Risk

Technology and Other Operational Risks

Liability and Liquidity Management

Deposit Insurance and Other Liability Guarantees

Capital Adequacy

Product and Geographic Expansion

Futures and Forwards

Options, Caps, Floors, and Collars

Swaps

Loan Sales

Securitization

Filters