60. An important investment security popular with banks that must by law mature within one year from the date of issue and which has a high degree of safety and marketability is the:
A) Treasury bill
B) Treasury note
C) FNMA note
D) Bankers' acceptance
E)
a. treasury bill
61. A bank's promise to pay the holder a designated amount of money on a designated future date and is often used in international trade is known as a (or an):
A) Promissory guarantee
B) Discount security
C) Bankers' acceptance
D) In the money option
E) A
c. bankers' acceptance
62. 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 (or an):
A) Accretion bond
B) Participation certificate
C) CMO
D) Stripped security
c. CMO
63. Fluctuations in the timing of cash payments flowing from an underlying pool of securitized assets is referred to as:
A) Income risk
B) Prepayment risk
C) Liquidity risk
D) Capital risk
E) None of the above
b. prepayment risk
64. Principal roles that a financial institution's investment portfolio play include which of the following?
A) Income stability
B) Geographic diversification
C) Hedging interest rate risk
D) Backup liquidity
E) All of the above
e. all of the above
65. _____________ is the method by which banks can provide a safeguard for the deposits of governmental units.
A) Hedging
B) Collateralization
C) Pledging
D) Securitization
E) Window dressing
c. pledging
66. The most aggressive investment maturity strategy that calls for the bank to continually shift the maturities of its securities in response to changes in interest rates and other economic conditions is the
A) Barbell strategy
B) Rate expectations appro
b. rate expectations approach
67. Which of the following statements is (are) correct regarding duration?
A) In comparing two bonds with the same yield to maturity and the same maturity, a bond with a higher coupon rate will have a longer duration.
B) In comparing two loans with the sa
b. in comparing 2 loans with the same maturity and the same interest rate, a fully amortized loan will have a shorter duration than a loan with a balloon payment
68. Which of the following is not one of the Capital Market instruments in which banks invest?
A) U.S. Treasury notes
B) Corporate notes and bonds
C) U.S. Treasury bonds
D) Municipal bonds
E) Commercial paper
e.commercial paper
69. Which of the following is true of Treasury bills?
A) Interest on Treasury bills is exempt from state income taxes.
B) Interest on Treasury bills is exempt from federal income taxes.
C) Treasury bills pay a lower pretax yield than comparable corporate
e. a and c only
70. In recent years security dealers have assembled pools of federal agency securities whose principal interest yield may be periodically reset based on what happens to a stated interest rate or may carry multiple coupon rates that are periodically adjust
d. structured note
71. Banks are generally not allowed to invest in speculative grade bonds. What kind of risk is this designed to limit?
A) Liquidity risk
B) Business risk
C) Credit risk
D) Tax exposure
E) Interest rate risk
c. credit risk
72. A security where the interest payments and the principal payments are sold separately is called:
A) A Treasury note
B) An accretion
C) A structured note
D) A stripped security
E) None of the above
d. a stripped security
73. Which of the following is true? Mortgage prepayment risk:
A) Is higher on high interest rate mortgages
B) Is felt most dramatically when interest rates rise
C) Is eliminated by the use of mortgage backed securities
D) Is eliminated by the purchase of
a. is higher on high interest rate mortgages
74. A bank replaces 5-year corporate bonds with a yield to maturity of 9.75 percent with 5-year municipal bonds with a yield to maturity of 7 percent. This bank is in the 35 percent tax bracket and these bonds have the same default risk. What is the most
d. tax exposure
75. 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. This bond is in the 35 percent tax bracket. What is the net
b. 3.5 percent
76. An investor can invest in either a tax-exempt security that pays 5% or a taxable corporate security of comparable risk and maturity that pays 8%. At what marginal tax rate will the investor be indifferent between these two securities?
A) 25.0%
B) 32.5
c. 37.5%
77. Which of the following would not be considered a bank qualified municipal security?
A) A Columbia County general obligation bond to modernize the county fire department.
B) A Bucks County general obligation bond to build a new sewer plant.
C) A City o
e. a treasury bond to finance govt debt
78. A bond has three years to maturity and has a coupon rate of 15 percent. This bond is selling in the market for $1072 and has a yield to maturity of 12%. What is the duration of this bond?
A) 3 years
B) 1 year
C) 1.92 years
D) 2.45 years
E) 2.64 years
e. 2.64 years
79. A bond has six years to maturity and has a coupon rate of 7.5 percent. Coupon payments are made annually and this bond has a face value of $1000. This bond is selling in the market for $1127. What is the yield to maturity on this bond?
A) 7.5 percent
b. 5 percent
80. A bond has eight years to maturity and a coupon rate of 6.5 percent. Coupon payments are made annually and this bond has a face value of $1000. This bond is selling in the market for $862. What is the yield to maturity on this bond?
A) 6.5 percent
B)
d. 9 percent
81. A bond has eight years to maturity and a coupon rate of 6.5 percent. Coupon payments are made annually and this bond has a face value of $1000. This bond is selling in the market for $862. If this bond is sold at the end of four years for $1046, what
b. 12 percent
82. A security which was created by the Treasury to protect against inflation risk is called a(n):
A) CMO
B) FNMA
C) GNMA
D) TIPS
E) CD
d. TIPS
83. A financial institution that is concerned about the possibility that the purchasing power of both the interest income and principal income will decline on a loan is concerned about which of the following things?
A) Business risk
B) Liquidity risk
C) T
e. inflation risk
84. A bank that is concerned that the economic conditions of the market area they serve may take a downturn with falling demand for loans and higher bankruptcies in the areas is concerned about which of the following things?
A) Business risk
B) Liquidity
a. business risk
85. Which of the following is a characteristic of Treasury bills?
A) They are coupon instruments
B) They are the short term debt instruments issued by major corporations
C) They are discount securities
D) They have more risk than other money market securi
c. they are discount securities
86. The investment maturity strategy which calls for the bank to put all of their investment assets into very long term securities is called the:
A) Front-end-loaded maturity policy
B) Back-end-loaded maturity policy
C) Ladder or spaced maturity policy
D)
b. back-end-loaded maturity policy
The Lancaster State Bank is thinking about purchasing a corporate bond that has a yield of 8.5%. This bank has a marginal tax rate of 25%. What is the after-tax yield on this bond?
A) 11.33%
B) 8.5%
C) 6.375%
D) 2.125%
E) None of the above
c. 6.375%
88. The Ferson National Bank is thinking about purchasing a municipal bond that has a yield of 5.5%. This bank has a marginal tax rate of 30%. What is the after-tax yield on this bond?
A) 7.86%
B) 5.5%
C) 3.85%
D) 1.65%
E) None of the above
b. 5.5%
***89. The Stumbaugh State Bank is thinking about purchasing a corporate bond that has a yield of 9%. This bank has a marginal tax rate of 40%. What is the after-tax yield on this bond?
A) 15%
B) 9%
C) 5.4%
D) 3.6%
E) None of the above
...
90. The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1000. It has 11 years to maturity and is selling in the market for $887.52. The bond makes annual coupon payments. What is the yield to maturity on this
a. 7%
91. The Price Perpetual Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1000. It has 11 years to maturity and is selling in the market for $887.52. The bond makes annual coupon payments. The Price Perpetual Bank is planning o
d. 9%
92. 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 selling in the market for $1309.80. The bond makes annual coupon payments. What is the yield to maturity on thi
c. 8%
93. 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 selling in the market for $1309.80. The bond makes annual coupon payments. The Farmer National Bank plans on se
a. 7%
***94. The Johnson National Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1000. It has 4 years to maturity and is selling in the market for $917. The bond makes annual coupon payments. What is the yield to maturity on this
...
95. The Johnson National Bank has purchased a bond that has a coupon rate of 5.5% and a face value of $1000. It has 4 years to maturity and is selling in the market for $917. The bond makes annual coupon payments. What is the duration of this bond?
A) 3.3
b. 3.68 years
96. The Sheets Savings and Loan Association has purchased a bond that has a coupon rate of 7.5% and a face value of $1000. It has 5 years to maturity and is selling in the market for $1063. The bond makes annual coupon payments. What is the duration of th
d. 4.37 years
97. The Dillinger State Bank has purchased a bond from the Interstate Manufacturing Company that has 15 years to maturity and has a coupon rate of 12.5%. Market interest rates have recently declined to 8% and the Dillinger State Bank is worried that the I
e. prepayment risk
98. The Terrell State Bank is a small bank located in Guyman, Oklahoma. All of their loans are agriculture and small business loans in Guyman. They want to buy a municipal bond from the state of South Carolina. What type of risk are they likely trying to
c. business risk
99. The Caldwell National Bank has purchased a bond that pays a coupon rate of 10.5%. They are a little concerned because they believe rates will decrease in the future and they will not be able to reinvest the coupon payments at the same rate. What type
b. interest rate risk
100. Moody's Investor Service has added the numbers 1, 2 and 3 to some of their ratings. What type of risk are these ratings attempting to measure?
A) Credit risk
B) Interest rate risk
C) Business risk
D) Call risk
E) Prepayment risk
a. credit risk
101. The Roy State Bank has just purchase a portfolio of asset backed securities. What type of risk do these securities have that other securities do not have?
A) Credit risk
B) Interest rate risk
C) Business risk
D) Call risk
E) Prepayment risk
e. prepayment risk
102. The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.25%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qual
d. 2.43%
103. The Wesson Wisconsin State Bank has purchased a bank-qualified municipal bond with a yield of 7.5%. This bank had to borrow funds to make this purchase at a cost of 6%. This bank is in the 25% tax bracket. What is the net after-tax return on this ban
b. 2.7%
104. The Goodknight Company has issued securities with 45 days to maturity. What type of security have they issued?
A) Commercial Paper
B) Banker's Acceptance
C) Corporate Bond
D) Certificate of Deposit
E) Municipal Bond
a. commercial paper
105. The Dakota National Bank has purchased a security issued by the state of Tennessee that has 20 years to maturity. What type of security have they purchased?
A) Commercial Paper
B) Banker's Acceptance
C) Corporate Bond
D) Certificate of Deposit
E) Mun
e. municipal bond