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MT 2 Fall 08 Scantron

MT 2 Fall 08 Scantron - m 0> Z-a:D O 2 O O 33'D 0 g d 0 Z...

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Unformatted text preview: @ m 0 > Z --a :D O 2 O O 33 'D 0 g d 0 Z m o o ‘1 )> .— ,. a (D E. (I) m m (I) I11 I) < m .0 .2- 5”— 'U .3 z— 9 @— .‘D a— U? (I) >— Z O .c— .U' "D 2,.— Z .0.— 5'" O m y.— m u: V V— _ .— —_ — — _ —_ .— —— _ 1 2 3 4 5 6 7 8 9 10 D—‘22 33— 25 '2;— :i— g 27 EVSSLEGOL Hal 666 L008 ZLW 5080L0 SUBJECTIVE SCORE INSTRUCTOR USE ONLY . . m -In1 § °§ a 2m :2 >g 2 F!‘ 90 n "13 .A ‘U u l- m n -I '3’ P .< -e- :93 av: (DUHTI O-I>< oc> 3103 WE? -lm O '11 an" m? 23%: nun" umss nun“ "an” qug nun“ ¢ 3" n {12. mi? . n 2" a? eie§ .LOEIf‘GnS SMHVIN )IHVCI EXVW - wmugxmu swgod 89L . Ra): uo euu Jed mew auo Aluo . slugod aAnaagqns alqgssod [210: )uew - C (n m 2 9 N 1 n1 2 Q r O E .< .- lNVlHOdINl .4 80 0% mm mm 1!: mm >L "m Co 3‘: W< m 3-N-888 'ON waoa @N O H l N V 3 S A7NO 3NIHOVl/V QNIHOOS .LSHJ. NO 35/7 «80:! 080038 1831. LUOO'SLuJowonueas'MM/vx HNHNO 8308038 Version A Student name: % Business 171a 3 Fall 2008 . i Midterm Examination 2 Instructions and notes: l 1. 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. i II. Please mark your test version on your scantron; otherwise you will be assigned a version at random and ' the score you get using this random version 15 f nal —NO CHANGE III. This 1s a closed- book, closed-notes exam. Do not consult others. You may use a calculator. IV. There 15 one correct answer to each problem Multiple answers receive zero point. V. FI=financial institution; Fed=Federal Reserve System; YTM = yield to maturity VI. Unless specified otherwise, a. investors maximize their net worth (i e., they are “rational”) and firms maximize their common shareholders’ net worth all markets are efficient. firms are typical of the industry in which they operate. approximations should be rounded to 2 digits after the decimal. a debt security has a face (par) value of $1,000 9999‘ ‘ 1. Consi r the yield curve @ i is the graph of spot interest rates against maturity; Wmingimprgvg " when the yield curve is upward sloping I w ‘ 1 (b) It 1s the graph of spot interest rates against maturity; mortgage lenders earning improve 1 when the yield curve is downward sloping l (c) It is the graph of forward interest rates against maturity; mortgage lenders’ earning improve when the yield curve is upward sloping (d) It 1s the graph of forward interest rates against maturity; mortgage lenders’ earning improve when the yield curve is downward sloping 74 2. You buy a bond for $950. The bond pays interest of $100 at the end of year 1, at whichtime you sell it for $980. The rate of return you expect to earn on this investment is approximately (a) 8.00% ' (b) 10. 53% (c 3:10 20% K 3. The secondary markets are useful (a) for price discovery (b) for price discovery and in providing liquidity (c) in providing liquidity ’ (din enabling companies to raise funds from investors ‘oth (c) and (d) l 1 , 10. You have borrowed an amortizing 15-year, $100, 000 mortgage at the fixed rate of 6% per year. You make your payments at the end of each year. To calculate your annual payments, C, you should use p a“ L a _ C” C C +77% + W t ”E . o e (a) 0030.00” 1.061 +.1.062+'"+ 1.0615 ,/ 00(000 7 @L} \ (3 6‘2.“ " ‘. . ¢ V" . (b) C = 100,000/ 1.06 6000 6000 106000 + + ....+ -~— , with r = the a ro riate discount rate 1+r (1+ r)Z (1+r)15 pp p ((1) None of the above 1. ,3 l , l X :pass—through mortgage security (a) Gives each mortgage lender an interest in the receipts from all mortgages lent by a group of partner banks that have pooled these mortgages (b) Gives each secondary market investpr an interest in the receipts on pools of mortgages . ‘ created by financial institutions. 3' ‘ _ «(9) Entailsjhe risk of prepayment , wwéifx “1:. (2:. ‘f ,. :x (d) 137:}: (b) and (0) V5) “"1 (e) Both (a) and (c) (C) C: X 12. You have borrowed a $100,000, 6—year, 5%—fixed—rate balloon payment mortgage, compounded- ‘ ' yearly. You make your payments at the end of each year. What are your payments? C C C (a) Use the formula to solve for C: $100,000— — F51- + 1.052 + ...+ 1.056 @5900 for 6 years, plus $100,000 at the/e/nd of the ‘6th year C C + +C+100000 1+051 1.052 1.056 (c) Use the formula to solve for C: $100, 000 =-—- “ 3/ w .1” 13. Consider a chip manufacturer in Taiwan who exports to the US. Chips are sold in theAhighly }‘~\ competitive U. S market for US§ ! 50 each and the seller has no power to raise the price. The \ Taiwan producericonverts a 13 dollar receipts to Taiwan dollars (T$) to fund his operation in Taiwan. His earnings rise if the T$ appreciates relative to the US dollar. True @: alse $3673 $671” 7/0 A US. bank conVerted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate custOmer when the exchange rate was 1.5 francs per dollar. The borrower agreed to repay the principal plus 5% in francs interest in 1 year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.4 francs per dol ar. What was the bank's dollar raterof return? X, . § :Z\ V S50 W (a) 6.00% l-OOOLO GO ”rm/J“ -11.67% , f , OS is“ .. —- > /€:); 7.14% . \1§OO(6®X\ ' a! H p; \\Q_‘§£® . a , , $100,000 (principal),>5-year balloon payment adjustable-rate mortgage (ARM) has 2 years left ~/ to maturity. For simplicity assume that all payments are made once a year at the end of 12th if” month (on Oct—3042009). The Oct-3072009 interest rate is 5%, but the Oct-30-2010 payment is 5’ eXpected to be based on an interest rate of 6%,gat which time the principal is paid as well. If an i investor wanted to buy this mortgage (in the form of a security).and her required a yield to ' " maturity rate of 7%, how’much would. she pay for this security? ' ' u \2. i fi@"$97,257.40 - I00 000%”? ‘9 a - . ‘ 5380 Wsloonoo {7J3V50tfiu’v , IOQX 39X ‘93? 2W5?” , fir” div-7% (c) $101,896.29 9 ‘ '2; *3 gwpgéfim ’5‘ £36? , . , (d, / 5,576.13 L V. 9 712:7}? e ‘ annot be calculated because the interest rates change 22. You can invest in a 2-year bond that costs $980; you will receive coupons in 1 year and in 2 years, respectively, and you sell the bond at maturity (the day you receive the second coupon). I The coupon rate is 10%. The yield to maturity is 8% on this bond. If you require a rate of return of r ,the appropriate formula to use to decide whether you should buy this bond is 80 80 +1000 Bond value = —+ + —2 \ 1.10 1.10 MBond value: 100 M . . 33 i ————+ 1.08 1.082 M980=m+ 1100 . i i) 1 Mxtbg: l;€MéfiY&‘%,€$ 1+1“ (1+r)2 .‘Vone ofthe above \ ggvtxl 0% 1 \ ’g “,7 SH 16%;?ng /\ 6%? J] 29. We observe the current one—year US Government security rate to be higher than the current two-, year US Government security. What can be inferred about the one—year US Government security rate expected one year from now? . Next year’s one-year rate will be higher than the current one-year rate , afg‘xt year’s one-year rate will be higher than the‘ current two-year rate ' ' ext year s one—year rate will be lower than the current one-year rate i" a‘ " There 1s nothing that can be inferred from the current rates about next year’s rates 30. A US bank IS holding Japanese 100 yens (¥) in its portfolio. Suppose that the current exchange price is $1 = ¥ 98. Which statement is accurate? [OD ¥ the yen rises to $1 = ¥ 100 the bank’s asset value rises (c If the yen falls to $1— ‘ ¥ 100 the bank’s asset value rises (d) If the yen falls to $1 — ¥ 96 the bank’s asset value falls (e) If the yen rises to $1 = ¥ 100 the bank’s asset value remains unchanged 31. You bought a stock 1 year ago for $48. You received a dividend of $2 today and then sold your ‘ stock immediately for $45. , , Total rate of return On your stock is —6%, consisting of +4% in dividend yield and -10% ‘f in capital gain . i '1 Total rate of return on your stock is +11 11%, consisting of +4.44% in dividend yield nd +6 67% 1n capital gain (figures are rounded) ’ otal rate of return on your stock is -2. O8 ___‘__%, consisting of+ +§i17 ”(o in dividend yield ., and -6. 25% 1n capital gain ((1) None of the above 32. The US Congress passed a $700-billion rescue (or “bailout”) plan recently, managed by the US Treas » 0 far Treasury , lent about $125 billion to banks (in) has invested $125 billion in bank preferred stocks (c) has lent about $$125 billion to insurance companies ' (d) has invested about $125 billion in insurance preferred stocks . Ms “2“ . ' , I 100% $1: (’18 ' org 1 “4166/ do; \{ “3‘“ ., 1531131? 4E "‘ the yen rises to $1 = ¥ 96 the bank’s asset value rises fl; 1 *3?— {fig %\ ¢SZ©L€1 ti ...
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