sample MC 27 - 85. How would regulators characterize this...

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Unformatted text preview: 85. How would regulators characterize this FI based on the leverage ratio zones of FDICIA? A) well capitalized. B) undercapitalized. C) severely undercapitalized. D) overcapitalized. E) insolvent. Answer: B 86. If problem loans reduce the market value of the loan portfolio by 25 percent, what is the value of regulatory defined (book value) capital? A) $35 million. B) $155 million. C) $7 million. D) $7 million. E) 0 Answer: A 87. If problem loans reduce the market value of the loan portfolio by 25 percent, what is the market value of capital? A) $35 million. B) $155 million. C) $7 million. D) $7 million. E) 0 Answer: B 88. If historical cost accounting methods allow the bank to write down only 10 percent of the problem loan loss, what will be the book value of capital? A) $35 million. B) $155 million. C) $16 million. D) $7 million. E) 0 Answer: C 89. If the loan portfolio consists of five-year, 10 percent annual coupon loan selling at par, what is the market value of capital if interest rates increase 1 percent? A) $35 million. B) $155 million. C) $7 million. D) $7 million. E) 0 Answer: C 82. Each of the following is a function of capital except A) acquiring the necessary premises to provide financial services. B) protecting the insurance fund and the taxpayers. C) assuring the highest possible return on equity for the shareholders. D) protecting uninsured depositors in the event of insolvency and liquidation. E) absorbing losses in a manner that allows the FI to continue as a going concern. Answer: C 83. What is the impact on economic capital of a 25 basis point increase in interest rates if the FI is holding a year, fixed-rate, 11 percent annual coupon bond selling at a par value of $100,000? A) A decrease of $250. B) An increase of $250. C) An increase of $2,023. D) A decrease of $1,959. E) No impact on capital since the book value is unchanged. Answer: D 84. From a regulatory perspective, what is the impact on capital of a 25 basis point increase in interest rates if the FI is holding a year, fixed-rate, 11 percent annual coupon $100,000 par value bond? A) A decrease of $250. B) An increase of $250. C) An increase of $2,023. D) A decrease of $1,959. E) No impact on capital since the book value is unchanged. Answer: E 90. If the loan portfolio consists of five-year, 10 percent annual coupon par value loans, what is the market value of capital if interest rates decrease 2 percent? A) $35 million. B) $95 million. C) $60 million. D) $ 7 million. E) 0 Answer: B 91. The par value of shares is A) the face value of shares issued upon establishment of the FI. B) the difference between the market price at the time of issue and the face value of the shares....
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sample MC 27 - 85. How would regulators characterize this...

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