8262001final - Final Exam Finance 826 Professor Helwege...

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Final Exam Professor Helwege Finance 826 Autumn 2001 You have the entire class period to answer these questions. You may use scrap paper, a calculator, and a writing implement. If you think certain assumptions are important in determining the answer and those assumptions are not made clear in the question, feel free to write them down so that you may receive partial credit. Total points = 100. PART I. Answer every question in this section to receive full credit (80 points possible). (5 pts.) 1. Wells Fargo owns a portfolio of $400 million in residential mortgages that it would like to get off its balance sheet in order to take advantage of investor demand in the MBS market. Which of the following methods are likely to be used by Wells Fargo, an Aa2-rated issuer? (Circle ALL true answers.) 1. Issue a pass-through bond with a face value of $400 million. 2. Enter into a default swap with JP Morgan or another investment bank. 3. Sell the mortgages to another bank, who will hold them in its portfolio. 4. Use senior/sub credit enhancement, with the sub bond rated less than AAA. 5. Issue PO strips, given that it has an eager investor in IO strips. (5 pts) 2. Which of the following pieces of evidence indicate a lack of efficiency in the IPO market? (Circle ALL that are true) 1. The number of IPOs per month over the four decades ending in 2001 ranges from 0 to 122. 2. The average percentage difference between the offering price of an IPO and the price that it trades at in the secondary market is 15%. 3. The IPO firms that subsequently raise money in SEO and bond markets have higher operating profits than those that never again tap the capital markets. 4. The average five year return on a portfolio of IPOs is less than the average return on the S&P 500. 5. Venture-capital backed IPOs have higher long term returns than other IPOs. (5 pts) 3. According to Calvo and Fernandez-Arias, an emerging market currency crisis: (Circle ALL answers that correctly finish the sentence.) 1. Is usually related to low savings rates. 2. Is recently associated with changes in capital flows that lead to increases in the current account deficit. 3. Is recently related to inflation. 4. Owes mainly to a poorly structured banking system that is unable to allocate capital efficiently because of cronyism. 5. Is less likely if a country liberalizes its financial system. (8 pts.) 4. High St. Bank has $500 million in assets, which are funded by $440 million of insured
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deposits, $50 million of subordinated debt and its own equity. For each action below, state (1) whether it would solve High St. Bank’s problem and (2) whether it is likely to be used by the bank? a. Sell off $250 in corporate loans and use them to fund a mix of Treasury bills and Fannie Mae pass-throughs. __(1)___No – doesn’t help leverage ratio
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This note was uploaded on 07/17/2008 for the course BUSFIN 826 taught by Professor Helwege during the Spring '04 term at Ohio State.

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8262001final - Final Exam Finance 826 Professor Helwege...

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