Midterm 2 - Day -Version A Business 171a Spring 2008...

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Day -Version A Student name:__________________________ Business 171a Spring 2008 Midterm Examination 2 Instructions and notes : I. Please put your name on BOTH the scantron and this exam. If your name is missing from either, you will receive ZERO on the final exam – no exception and no changes afterwards. II. This is a closed-book, closed-notes exam. Do not consult others. You may use a calculator. III. There is one correct answer to each problem. Multiple answers receive zero point. IV. FI=financial institution; Fed=Federal Reserve System; YTM = yield to maturity V. Unless specified otherwise, a. investors maximize their net worth (i.e., they are “rational”) and firms maximize their common shareholders’ net worth. b. all markets are efficient. c. firms are typical of the industry in which they operate. d. approximations should be rounded to 2 digits after the decimal. e. a debt security has a face (par) value of $1,000 Interest Rate Parity : (1+ i d ) = (1+ i w ) F/S. i d = domestic interest rate ; i w = foreign interest rate S= spot exchange rate ($/foreign currency); F= forward exchange rate ($/foreign currency) 1. If you can convert 150 Swiss francs to $90 the exchange rate is 1.67 francs per dollar. (a) True (b) False 2. A negotiated non-standardized agreement between a buyer and seller (with no third party involvement) to exchange an asset for cash at some future date, with the price set today is called (a) Forward (b) Future (c) Option (d) None of the above 3. A contingent item that may eventually be placed on the right hand side of the balance sheet or expensed on the income statement is a/an (a) Loan commitment (b) Off balance sheet liability (c) Off balance sheet asset (d) Net charge off (e) Loan sold without recourse 4. Major liabilities for banks include (a) Business loans (b) Interest expense paid on deposits (c) Deposits by clients (d) Equity capital (e) Securities held for sale 1
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5. Considering the balance sheets of commercial banks, (a) Loans given to borrowers appear on the assets side (b) Loans given to borrowers appear on the liabilities side (c) The money you deposit into your checking account appears on the assets side 6. You bought a stock 1 year ago for $50. You received a dividend of $2 today and then sold your stock immediately for $45. (a) Total rate of return on your stock is -6%, consisting of +4% in dividend yield and -10% in capital gain (b) Total rate of return on your stock is +15.56%, consisting of +4.44% in dividend yield and +11.11% in capital gain (figures are rounded) (c) Total rate of return on your stock is +11.11%, consisting of +4% in dividend yield and +7.11% in capital gain (d) None of the above 7. You buy a June 2008 crude oil futures when the June futures crude oil price is $114. (a) Since you and your counterparty are bound to trade at the price of $114, then the
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This note was uploaded on 09/08/2010 for the course BUS 171A at San Jose State University .

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Midterm 2 - Day -Version A Business 171a Spring 2008...

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