f726_final_f03_ans - Finance 726 Final Fall 2003 Professor...

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Finance 726 Professor Helwege Final Fall 2003 Instructor Damsel You have the entire class period to finish this exam. You may use a calculator, scrap paper, and a writing tool to complete this exam. You may hand in the scrap paper (with your name on it) to help you receive partial credit for incorrect answers. Total points=100. Part I. Answer all questions in this section to receive full credit. (80 points) (6 pts.) 1. Which of the following insurance products involve a definite, precisely defined payout (PP), a payout that will certainly occur but the size of the payout is unknown (UP) and which policies may or may not have any payout (P?)? a. An annuity. __PP__ b. A variable annuity. __UP_ c. A variable life policy. __UP__ d. A term life policy. __P?___ e. Whole life insurance. __PP__ f. An endowment life policy. __PP__ (5 pts.) 2. Which of the following items should be high (H) for a healthy bank or low (L) for a healthy bank? a. OREO. __L___ b. Nonperforming loans. __L__ c . N I M . _ _ H _ _ d. Classified loans. __L___ e. Loan loss reserves. __L___ (6 pts.) 3. Name three major banking laws/regulations (use the correct name, not a description). a. ___McFadden Act_______________ b. ___Basel Accord________________ c. ___Glass-Steagall Act____________
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(8 pts) 4. You have a choice between investing $50,000 in a 10-year CD at a bank or investing the same amount in a variable life insurance policy with a term of 10 years. Which of the following features are important determinants of your decision? Circle ALL of the feature below that are important a. If the $50,000 is invested in assets with credit risk and they default, you are more likely to suffer a loss of principal with the insurance policy because the FDIC does not cover your policy and state insurance funds are usually very small. b. If the $50,000 is invested in assets that turn out to have exceedingly high returns, the variable life insurance policy will pay a much higher return than the CD because it is equivalent to a mutual fund. c. If the $50,000 is invested in assets that turn out to have exceedingly high returns, you will benefit somewhat more from having bought the insurance policy because its return is not fixed at a precise amount and will go up with the returns of the underlying assets. d. If you invest in the insurance company policy, you can avoid paying taxes on the unrealized capital gains. (6 pts) 5. Mutual of Omahaha, a property and casualty insuance company has written a substantial fraction of its policies on homes located in Florida. How might this company avoid going bankrupt in the event of a major hurricane? Circle ALL of the choices that are helpful. a.
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This note was uploaded on 07/17/2008 for the course FIN 726 taught by Professor Helwege during the Spring '04 term at Ohio State.

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f726_final_f03_ans - Finance 726 Final Fall 2003 Professor...

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