Chap003金融机构管理课后题答案

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Chap3财务管理,公司金融,罗斯第十版解答

Chap3财务管理,公司金融,罗斯第十版解答
讨论:市账比小于1意味着一个好的投资吗?或许意味着低估,但也意味着市场对公司的未来发展活力呈负面看法。
计算市场价值I
• 市场价格= 87.65 美元/股 • 流通股数= 190.9 百万股million • 市盈率PE= 每股股价/每股盈余=87.65
/ 3.61 = 24.28 倍 • 市账比=每股市场价值/每股账面价值
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章节概要
• 现金流量和财务报表:进一步观察 • 标准财务报表 • 比率分析 • 杜邦恒等式 • 利用财务报表信息
3-3
• 市盈率=股票价格/每股收益
点击Sample B/S可回到资产负债表示例。在资产负债表示例页面点击绿色小箭头可回到此页。
来源与使用
• 来源
· 现金流入-当我们卖出某些东西时会产生 · 资产账户价值的增加 (Sample B/S)
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计算流动比率
• 流动比率= 流动资产 / 流动负债
· 2,256 / 1,995 = 1.13 倍
• 速动比率= (流动资产 – 存货) / 流动负债
· (2,256 – 301) / 1,995 = .98倍
• 现金比率= 现金 /流动负债
· 696 / 1,995 = .35 倍
• 净营运资本与总资产之比=净营运资本/总 资产
• 同比资产负债表(表3-5)
· 将所有项目表示为总资产的百分比
• 同比利润表(表3-6)
· 将所有项目表示为销售收入的百分比
• 标准化财务报表使得财务信息更容易被比较,尤其 是在公司成长的过程中。
• 也可用来比较不同规模的公司,尤其是当这些公司 处பைடு நூலகம்同一行业时。
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实际生活中的财务报表可能并不像本章的那么直接易懂。

金融机构管理第九章中文版课后习题答案(1、2、3、6、11、12、13、16)

金融机构管理第九章中文版课后习题答案(1、2、3、6、11、12、13、16)

金融机构管理第九章课后习题部分答案(1、2、3、6、11、12、13、16)1. 有效期限衡量的是经济定义中资产和负债的平均期限。

有效期限的经济含义是资产价值对于利率变化的利率敏感性(或利率弹性)。

有效期限的严格定义是一种以现金流量的相对现值为权重的加权平均到期期限。

有效期限与到期期限的不同在于,有效期限不仅考虑了资产(或负债)的期限,还考虑了期间发生的现金流的再投资利率。

2.息票债券面值价值= $1,00利率= 0.10 每年付一次息到期收益率=0.08 期限= 2时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.92593$92.59 $92.592 $1,100.00 0.85734$943.07 $1,886.15价格=$1,035.67分子= $1,978.74有效期限=1.9106= 分子/价格到期收益率=0.10时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.90909$90.91 $90.912 $1,100.00 0.82645$909.09 $1,818.18价格=$1,000.00分子= $1,909.09有效期限=1.9091= 分子/价格到期收益率=0.12时间现金流PVIF PV ofCF PV*CF *T1 $100.00 0.892$89.29 $89.292 $1,100.00 0.79719$876.91 $1,753.83价格=$966.20分子= $1,843.11有效期限=1.9076= 分子/价格b. 到期收益率上升时,有限期限减少。

c.零息债券面值价值= $1,00利率= 0.00到期收益率=0.08 期限= 2时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.92593$0.00 $0.002 $1,000.00 0.85734$857.34 $1,714.68价格=$857.34分子= $1,714.68有效期限=2.000= 分子/价格到期收益率=0.10时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.90909$0.00 $0.002 $1,000.00 0.82645$826.45 $1,652.89价格=$826.45分子= $1,652.89有效期限=2.000= 分子/价格到期收益率=0.12时间现金流PVIF PV ofCF PV*CF *T1 $0.00 0.892$0.00 $0.002 $1,000.00 0.79719 $797.19 $1,594.39价格 = $797.19分子 =$1,594.39有效期限 =2.0000= 分子/价格d.到期收益率的变化不影响零息债券的有效期限。

金融市场与金融机构基础(第3章)英文版答案

金融市场与金融机构基础(第3章)英文版答案

ANSWERS TO QUESTIONS FOR CHAPTER 3(Questions are in bold print followed by answers.)1. Explain the ways in which a depository institution can accommodate withdrawal and loan demand.A depository institution can accommodate loan and withdrawal demands first by having sufficient cash on hand. In addition it can attract more deposits, borrow from the Fed or other banks, and liquidate some of its other assets.2. Why do you think a debt instrument whose interest rate is changed periodically based on some market interest rate would be more suitable for a depository institution than a long-term debt instrument with a fixed interest rate?This question refers to asset-liability management by a depository institution. An adjustable rate can eliminate or minimize the mismatch of maturity risk. As interest rates rise, the institution would have to pay more for deposits, but would also receive higher payments from its loan.3. What is meant by:a.individual bankingb.institutional bankingc.global bankinga.Individual banking is retail or consumer banking. Such a bank emphasizes individualdeposits, consumer loans and personal financial trust services.b.An institutional bank caters more to commercial, industrial and government customers. Itissues deposits to them and tries to meet their loan needs.c. A global bank encompasses many financial services for both domestic and foreign customers.It is much involved in foreign exchange trading as well as the financial of international trade and investment.4.a.What is the Basel Committee for Bank Supervision?b.What do the two frameworks, Basel I and Basel II, published by the BaselCommittee for Bank Supervision, address regarding banking?a.It is the organization that plays the primary role in establishing risk and managementguidelines for banks throughout the world.b.The frameworks set forth minimum capital requirements and standards.5. Explain each of the following:a.reserve ratiob.required reservesa.The reserve ratio is the percentage of deposits a bank must keep in a non-interest-bearingaccount at the Fed.b.Required reserves are the actual dollar amounts based on a given reserve ratio.6. Explain each of the following types of deposit accounts:a.demand depositb.certificate of depositc.money market demand accounta.Demand deposits (checking accounts) do not pay interest and can be withdrawn at any time(upon demand).b.Certificates of Deposit (CDs) are time deposits which pay a fixed or variable rate of interestover a specified term to maturity. They cannot be withdrawn prior to maturity without a substantial penalty. negotiable CDs (large business deposits) can be traded so that the original owner still obtains liquidity when needed.c.Money Market Demand Accounts (MMDAs) are basically demand or checking accounts thatpay interest. Minimum amounts must be maintained in these accounts so that at least a 7-day interest can be paid. Since many persons find it not possible to maintain this minimum (usually around $2500) there are still plenty of takers for the non-interest-bearing demand deposits.7. How did the Glass-Steagall Act impact the operations of a bank?The Glass-Steagall Act prohibited banks from carrying out certain activities in the securities markets, which are principal investment banking activities. It also prohibited banks from engaging in insurance activities.28. The following is the book value of the assets of a bank:Asset Book Value (in millions)U.S. Treasury securities $ 50Municipal general obligationbonds50Residential mortgages 400Commercial loans 200Total book value $700a.Calculate the credit risk-weighted assets using the following information:Asset Risk WeightU.S. Treasury securities 0%Municipal general obligationbonds20Residential mortgages 50Commercial loans 100b.What is the minimum core capital requirement?c.What is the minimum total capital requirement?a.The risk weighted assets would be $410b.The minimum core capital is $28 million (.04X700) i.e., 4% of book value.c.Minimum total capital (core plus supplementary capital) is 32.8 million, .08X410, which is8% of the risk-weighted assets.9. In later chapters, we will discuss a measure called duration. Duration is a measure of the sensitivity of an asset or a liability to a change in interest rates. Why would bank management want to know the duration of its assets and liabilities?a.Duration is a measure of the approximate change in the value of an asset for a 1% change ininterest rates.b.If an asset has a duration of 5, then the portfolio’s value will change by approximately 5% ifinterest rate changes by 100 basis points.3-310.a.Explain how bank regulators have incorporated interest risk into capitalrequirements.b.Explain how S&L regulators have incorporated interest rate risk into capitalrequirements.a.The FDIC Improvement Act of 1991, required regulators of DI to incorporate interest raterisk into capital requirements. It is based on measuring interest rate sensitivity of the assets and liabilities of the bank.b.The OST adopted a regulation that incorporates interest rate risk for S&L. It specifies that ifthrift has greater interest rate risk exposure, there would be a deduction of its risk-based capital. The risk is specified as a decline in net profit value as a result of 2% change in market interest rate.11. When the manager of a bank’s portfolio of securities considers alternative investments, she is also concerned about the risk weight assigned to the security. Why?The Basel guidelines give weight to the credit risk of various instruments. These weights are 0%, 20%, 50% and 100%. The book value of the asset is multiplied by the credit risk weights to determine the amount of core and supplementary capital that the bank will need to support that asset.12. You and a friend are discussing the savings and loan crisis. She states that “the whole mess started in the early 1980s.When short-term rates skyrocketed, S&Ls got killed—their spread income went from positive to negative. They were borrowing short and lending long.”a.What does she mean by “borrowing short and lending long”?b.Are higher or lower interest rates beneficial to an institution that borrows shortand lends long?a.In this context, borrowing short and lending long refers to the balance sheet structure ofS&Ls. Their sources of funds (liabilities) are short-term (mainly deposits) and their uses (assets) are long-term in nature (e.g. residential mortgages).b.Since long-term rates tend to be higher than short-term ones, stable interest rates would bethe best situation. However, rising interest rates would increase the cost of funds for S&Ls without fully compensating higher returns on assets. Hence a decline in interest rate spread or margin. Thus lower rates, having an opposite effect, would be more beneficial.13. Consider this headline from the New York Times of March 26, 1933: “Bankers will fight Deposit Guarantees.” In this article, it is stated that bankers argue that deposit guarantees will encourage bad banking. Explain why.The barrier imposed by Glass-Steagall act was finally destroyed by the Gramm-Leach Bliley Act of 1999. This act modified parts of the BHC Act so as to permit affiliations between banks and insurance underwriters. It created a new financial holding company, which is authorized to4engage in underwriting and selling securities. The act preserved the right of state to regulate insurance activities, but prohibits state actions that have would adversely affected bank-affiliated firms from selling insurance on an equal basis with other insurance agents.14. How did the Gramm-Leach-Bliley Act of 1999 expand the activities permitted by banks?a.Deposit insurance provides a safety net and can thus make depositors indifferent to thesoundness of the depository recipients of their funds. With depositors exercising little discipline through the cost of deposits, the incentive of some banks owners to control risk-taking accrue to the owners. It becomes a “heads I win, tails you lose” situation.b.One the positive side, deposit insurance provides a comfort to depositors and thus attractsdepositors to financial institutions. But such insurance carries a moral hazard, it can be costly and, unless premiums are risk-based, it forces the very sound banks to subsidize the very risky ones.15. The following quotation is from the October 29, 1990 issue of Corporate Financing Week:Chase Manhattan Bank is preparing its first asset-backed debt issue, becomingthe last major consumer bank to plan to access the growing market, Street asset-backed officialsSaid…Asset-backed offerings enable banks to remove credit card or other loanreceivables from their balance sheets, which helps them comply with capitalrequirements.a.What capital requirements is this article referring to?b.Explain why asset securitization reduces capital requirements.a.The capital requirements mentioned are risk based capital as specified under the BaselAgreement, which forces banks to hold minimum amounts of equity against risk-based assets.b.Securitization effectively eliminates high risk based loans from the balance sheet. The capitalrequirements in the case of asset securitization are lower than for a straight loan.16. Comment on this statement: The risk-based guidelines for commercial banks attempt to gauge the interest rate risk associated with a bank’s balance sheet.This statement is incorrect. The risk-based capital guidelines deal with credit risk, not interest-rate risk, which is the risk of adverse changes of interest rates on the portfolio position.17.a.What is the primary asset in which savings and loan associations invest?b.Why were banks in a better position than savings and loan associations toweather rising interest rates?a.Savings and Loans invest primarily in residential mortgages.b.During 1980's, although banks also suffered from the effects of deregulation and rising3-5interest rates, relatively they were in a better position than S&L association because of their superior asset-liability management.618. What federal agency regulates the activities of credit unions?The principal federal regulatory agency is the National Credit Union Administration.3-7。

Chap002金融机构管理课后题答案

Chap002金融机构管理课后题答案

Chapter TwoThe Financial Services Industry: Depository InstitutionsChapter OutlineIntroductionCommercial Banks∙Size, Structure, and Composition of the Industry∙Balance Sheet and Recent Trends∙Other Fee-Generating Activities∙Regulation∙Industry PerformanceSavings Institutions∙Savings Associations (SAs)∙Savings Banks∙Recent Performance of Savings Associations and Savings BanksCredit Unions∙Size, Structure, and Composition of the Industry and Recent Trends∙Balance Sheets∙Regulation∙Industry PerformanceGlobal Issues: Japan, China, and GermanySummaryAppendix 2A: Financial Statement Analysis Using a Return on Equity (ROE) Framework Appendix 2B: Depository Institutions and Their RegulatorsAppendix 3B: Technology in Commercial BankingSolutions for End-of-Chapter Questions and Problems: Chapter Two1.What are the differences between community banks, regional banks, and money-centerbanks? Contrast the business activities, location, and markets of each of these bank groups. Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2003, 94.5 percent of the banks in the United States were classified as community banks. However, these banks held only 14.6 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds.Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers.Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail branch systems, and most regional banks are major participants in foreign currency markets. These banks compete with the larger regional banks for large commercial loans and with international banks for international commercial loans. Most money center banks have headquarters in New York City.e the data in Table 2-4 for the banks in the two asset size groups (a) $100 million-$1billion and (b) over $10 billion to answer the following questions.a. Why have the ratios for ROA and ROE tended to increase for both groups over the1990-2003 period? Identify and discuss the primary variables that affect ROA andROE as they relate to these two size groups.The primary reason for the improvements in ROA and ROE in the late 1990s may berelated to the continued strength of the macroeconomy that allowed banks to operate with a reduced regard for bad debts, or loan charge-off problems. In addition, the continued low interest rate environment has provided relatively low-cost sources of funds, and a shifttoward growth in fee income has provided additional sources of revenue in many product lines. Finally, a growing secondary market for loans has allowed banks to control the size of the balance sheet by securitizing many assets. You will note some variance inperformance in the last three years as the effects of a softer economy were felt in thefinancial industry.b. Why is ROA for the smaller banks generally larger than ROA for the large banks?Small banks historically have benefited from a larger spread between the cost rate of funds and the earning rate on assets, each of which is caused by the less severe competition in the localized markets. In addition, small banks have been able to control credit risk moreefficiently and to operate with less overhead expense than large banks.c. Why is the ratio for ROE consistently larger for the large bank group?ROE is defined as net income divided by total equity, or ROA times the ratio of assets to equity. Because large banks typically operate with less equity per dollar of assets, netincome per dollar of equity is larger.d. Using the information on ROE decomposition in Appendix 2A, calculate the ratio ofequity-to-total-assets for each of the two bank groups for the period 1990-2003. Whyhas there been such dramatic change in the values over this time period, and why isthere a difference in the size of the ratio for the two groups?ROE = ROA x (Total Assets/Equity)Therefore, (Equity/Total Assets) = ROA/ROE$100 million - $1 Billion Over $10 BillionYear ROE ROA TA/Equity Equity/TA ROE ROA TA/Equity Equity/TA1990 9.95% 0.78% 12.76 7.84% 6.68% 0.38% 17.58 5.69%1995 13.48% 1.25% 10.78 9.27% 15.60% 1.10% 14.18 7.05%1996 13.63% 1.29% 10.57 9.46% 14.93% 1.10% 13.57 7.37%1997 14.50% 1.39% 10.43 9.59% 15.32% 1.18% 12.98 7.70%1998 13.57% 1.31% 10.36 9.65% 13.82% 1.08% 12.80 7.81%1999 14.24% 1.34% 10.63 9.41% 15.97% 1.28% 12.48 8.02%2000 13.56% 1.28% 10.59 9.44% 14.42% 1.16% 12.43 8.04%2001 12.24% 1.20% 10.20 9.80% 13.43% 1.13% 11.88 8.41%2002 12.85% 1.26% 10.20 9.81% 15.06% 1.32% 11.41 8.76%2003 12.80% 1.27% 10.08 9.92% 16.32% 1.42% 11.49 8.70% The growth in the equity to total assets ratio has occurred primarily because of theincreased profitability of the entire banking industry and the encouragement of theregulators to increase the amount of equity financing in the banks. Increased fee income, reduced loan loss reserves, and a low, stable interest rate environment have produced the increased profitability which in turn has allowed banks to increase equity through retained earnings.Smaller banks tend to have a higher equity ratio because they have more limited assetgrowth opportunities, generally have less diverse sources of funds, and historically have had greater profitability than larger banks.3.What factors have caused the decrease in loan volume relative to other assets on thebalance sheets of commercial banks? How has each of these factors been related to the change and development of the financial services industry during the 1990s and early2000s? What strategic changes have banks implemented to deal with changes in thefinancial services environment?Corporations have utilized the commercial paper markets with increased frequency rather than borrow from banks. In addition, many banks have sold loan packages directly into the capital markets (securitization) as a method to reduce balance sheet risks and to improve liquidity. Finally, the decrease in loan volume during the early 1990s and early 2000s was due in part to the recession in the economy.As deregulation of the financial services industry continued during the 1990s, the position of banks as the primary financial services provider continued to erode. Banks of all sizes have increased the use of off-balance sheet activities in an effort to generate additional fee income. Letters of credit, futures, options, swaps and other derivative products are not reflected on the balance sheet, but do provide fee income for the banks.4.What are the major uses of funds for commercial banks in the United States? What are theprimary risks to the bank caused by each use of funds? Which of the risks is most critical to the continuing operation of the bank?Loans and investment securities continue to be the primary assets of the banking industry. Commercial loans are relatively more important for the larger banks, while consumer, small business loans, and residential mortgages are more important for small banks. Each of these types of loans creates credit, and to varying extents, liquidity risks for the banks. The security portfolio normally is a source of liquidity and interest rate risk, especially with the increased use of various types of mortgage backed securities and structured notes. In certain environments, each of these risks can create operational and performance problems for a bank.5.What are the major sources of funds for commercial banks in the United States? How isthe landscape for these funds changing and why?The primary sources of funds are deposits and borrowed funds. Small banks rely more heavily on transaction, savings, and retail time deposits, while large banks tend to utilize large, negotiable time deposits and nondeposit liabilities such as federal funds and repurchase agreements. The supply of nontransaction deposits is shrinking, because of the increased use by small savers of higher-yielding money market mutual funds,6. What are the three major segments of deposit funding? How are these segments changingover time? Why? What strategic impact do these changes have on the profitable operation of a bank?Transaction accounts include deposits that do not pay interest and NOW accounts that pay interest. Retail savings accounts include passbook savings accounts and small, nonnegotiable time deposits. Large time deposits include negotiable certificates of deposits that can be resold in the secondary market. The importance of transaction and retail accounts is shrinking due to the direct investment in money market assets by individual investors. The changes in the deposit markets coincide with the efforts to constrain the growth on the asset side of the balance sheet.7. How does the liability maturity structure of a bank’s balance sheet compare with thematurity structure of the asset portfolio? What risks are created or intensified by thesedifferences?Deposit and nondeposit liabilities tend to have shorter maturities than assets such as loans. The maturity mismatch creates varying degrees of interest rate risk and liquidity risk.8. The following balance sheet accounts have been taken from the annual report for a U.S.bank. Arrange the accounts in balance sheet order and determine the value of total assets.Based on the balance sheet structure, would you classify this bank as a community bank, regional bank, or a money center bank?Assets Liabilities and EquityCash $ 2,660 Demand deposits $ 5,939Fed funds sold $ 110 NOW accounts $12,816Investment securities $ 5,334 Savings deposits $ 3,292Net loans $29,981 Certificates of deposit $ 9,853Intangible assets $ 758 Other time deposits $ 2,333Other assets $ 1,633 Short-term Borrowing $ 2,080Premises $ 1,078 Other liabilities $ 778Total assets $41,554 Long-term debt $ 1,191Equity $ 3,272Total liab. and equity $41,554This bank has funded the assets primarily with transaction and savings deposits. The certificates of deposit could be either retail or corporate (negotiable). The bank has very little ( 5 percent) borrowed funds. On the asset side, about 72 percent of total assets is in the loan portfolio, but there is no information about the type of loans. The bank actually is a small regional bank with $41.5 billion in assets, but the asset structure could easily be a community bank with $41.5 million in assets.9.What types of activities normally are classified as off-balance-sheet (OBS) activities?Off-balance-sheet activities include the issuance of guarantees that may be called into play at a future time, and the commitment to lend at a future time if the borrower desires.a. How does an OBS activity move onto the balance sheet as an asset or liability?The activity becomes an asset or a liability upon the occurrence of a contingent event,which may not be in the control of the bank. In most cases the other party involved with the original agreement will call upon the bank to honor its original commitment.b.What are the benefits of OBS activities to a bank?The initial benefit is the fee that the bank charges when making the commitment. If the bank is required to honor the commitment, the normal interest rate structure will apply to the commitment as it moves onto the balance sheet. Since the initial commitment does notappear on the balance sheet, the bank avoids the need to fund the asset with either deposits or equity. Thus the bank avoids possible additional reserve requirement balances anddeposit insurance premiums while improving the earnings stream of the bank.c.What are the risks of OBS activities to a bank?The primary risk to OBS activities on the asset side of the bank involves the credit risk of the borrower. In many cases the borrower will not utilize the commitment of the bank until the borrower faces a financial problem that may alter the credit worthiness of the borrower.Moving the OBS activity to the balance sheet may have an additional impact on the interest rate and foreign exchange risk of the bank.e the data in Table 2-6 to answer the following questions.a.What was the average annual growth rate in OBS total commitments over the periodfrom 1992-2003?$78,035.6 = $10,200.3(1+g)11 g = 20.32 percentb.Which categories of contingencies have had the highest annual growth rates?Category of Contingency or Commitment Growth RateCommitments to lend 14.04%Future and forward contracts 15.13%Notional amount of credit derivatives 52.57%Standby contracts and other option contracts 56.39%Commitments to buy FX, spot, and forward 3.39%Standby LCs and foreign office guarantees 7.19%Commercial LCs -1.35%Participations in acceptances -6.11%Securities borrowed 20.74%Notional value of all outstanding swaps 31.76%Standby contracts and other option contracts have grown at the fastest rate of 56.39 percent, and they have an outstanding balance of $214,605.3 billion. The rate of growth in thecredit derivatives area has been the second strongest at 52.57 percent, the dollar volumeremains fairly low at $1,001.2 billion at year-end 2003. Interest rate swaps grew at anannual rate of 31.76 percent with a change in dollar value of $41,960.7 billion. Clearly the strongest growth involves derivative areas.c.What factors are credited for the significant growth in derivative securities activities bybanks?The primary use of derivative products has been in the areas of interest rate, credit, andforeign exchange risk management. As banks and other financial institutions have pursuedthe use of these instruments, the international financial markets have responded byextending the variations of the products available to the institutions.11. For each of the following banking organizations, identify which regulatory agencies (OCC,FRB, FDIC, or state banking commission) may have some regulatory supervisionresponsibility.(a) State-chartered, nonmember, nonholding-company bank.(b)State-chartered, nonmember holding-company bank(c) State-chartered member bank(d)Nationally chartered nonholding-company bank.(e)Nationally chartered holding-company bankBank Type OCC FRB FDIC SBCom.(a) Yes Yes(b) Yes Yes Yes(c) Yes Yes Yes(d) Yes Yes Yes(e) Yes Yes Yes12. What factors normally are given credit for the revitalization of the banking industry duringthe decade of the 1990s? How is Internet banking expected to provide benefits in thefuture?The most prominent reason was the lengthy economic expansion in both the U.S. and many global economies during the entire decade of the 1990s. This expansion was assisted in the U.S. by low and falling interest rates during the entire period.The extent of the impact of Internet banking remains unknown. However, the existence of this technology is allowing banks to open markets and develop products that did not exist prior to the Internet. Initial efforts have focused on retail customers more than corporate customers. The trend should continue with the advent of faster, more customer friendly products and services, and the continued technology education of customers.13. What factors are given credit for the strong performance of commercial banks in the early2000s?The lowest interest rates in many decades helped bank performance on both sides of the balance sheet. On the asset side, many consumers continued to refinance homes and purchase new homes, an activity that caused fee income from mortgage lending to increase and remain strong. Meanwhile, the rates banks paid on deposits shrunk to all-time lows. In addition, the development and more comfortable use of new financial instruments such as credit derivatives and mortgage backed securities helped banks ease credit risk off the balance sheets. Finally, information technology has helped banks manage their risk more efficiently.14. What are the main features of the Riegle-Neal Interstate Banking and Branching EfficiencyAct of 1994? What major impact on commercial banking activity is expected from this legislation?The main feature of the Riegle-Neal Act of 1994 was the removal of barriers to inter-state banking. In September 1995 bank holding companies were allowed to acquire banks in other states. In 1997, banks were allowed to convert out-of-state subsidiaries into branches of a single interstate bank. As a result, consolidations and acquisitions have allowed for the emergence of very large banks with branches across the country.15. What happened in 1979 to cause the failure of many savings associations during the early1980s? What was the effect of this change on the operating statements of savingsassociations?The Federal Reserve changed its reserve management policy to combat the effects of inflation, a change which caused the interest rates on short-term deposits to increase dramatically more than the rates on long-term mortgages. As a result, the marginal cost of funds exceeded the average yield on assets that caused a negative interest spread for the savings associations. Further, because savings associations were constrained by Regulation Q on the amount of interest which could be paid on deposits, they suffered disintermediation, or deposit withdrawals, which led to severe liquidity pressures on the balance sheets.16. How did the two pieces of regulatory legislation, the DIDMCA in 1980 and the DIA in1982, change the operating profitability of savings associations in the early 1980s? What impact did these pieces of legislation ultimately have on the risk posture of the savingsassociation industry? How did the FSLIC react to this change in operating performance and risk?The two pieces of legislation allowed savings associations to offer new deposit accounts, such as NOW accounts and money market deposit accounts, in an effort to reduce the net withdrawal flow of deposits from the institutions. In effect this action was an attempt to reduce the liquidity problem. In addition, the savings associations were allowed to offer adjustable-rate mortgages and a limited amount of commercial and consumer loans in an attempt to improve the profitability performance of the industry. Although many savings associations were safer, more diversified, and more profitable, the FSLIC did not foreclose many of the savings associations which were insolvent. Nor did the FSLIC change its policy of assessing higher insurance premiums on companies that remained in high risk categories. Thus many savings associations failed, which caused the FSLIC to eventually become insolvent.17. How do the asset and liability structures of a savings association compare with the assetand liability structures of a commercial bank? How do these structural differences affect the risks and operating performance of a savings association? What is the QTL test?The savings association industry relies on mortgage loans and mortgage-backed securities as the primary assets, while the commercial banking industry has a variety of loan products, including mortgage products. The large amount of longer-term fixed rate assets continues to cause interestrate risk, while the lack of asset diversity exposes the savings association to credit risk. Savings associations hold considerably less cash and U.S. Treasury securities than do commercial banks. On the liability side, small time and saving deposits remain as the predominant source of funds for savings associations, with some reliance on FHLB borrowing. The inability to nurture relationships with the capital markets also creates potential liquidity risk for the savings association industry.The acronym QTL stands for Qualified Thrift Lender. The QTL test refers to a minimum amount of mortgage-related assets that a savings association must hold. The amount currently is 65 percent of total assets.18. How do savings banks differ from savings and loan associations? Differentiate in terms ofrisk, operating performance, balance sheet structure, and regulatory responsibility.The asset structure of savings banks is similar to the asset structure of savings associations with the exception that savings banks are allowed to diversify by holding a larger proportion of corporate stocks and bonds. Savings banks rely more heavily on deposits and thus have a lower level of borrowed funds. The banks are regulated at both the state and federal level, with deposits insured by t he FDIC’s BIF.19. How did the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) of1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991 reversesome of the key features of earlier legislation?FIRREA rescinded some of the expanded thrift lending powers of the DIDMCA of 1980 and the Garn-St Germain Act of 1982 by instituting the qualified thrift lender (QTL) test that requires that all thrifts must hold portfolios that are comprised primarily of mortgages or mortgage products such as mortgage-backed securities. The act also required thrifts to divest their portfolios of junk bonds by 1994, and it replaced the FSLIC with a new thrift deposit insurance fund, the Savings Association Insurance Fund, which was managed by the FDIC.The FDICA of 1991 amended the DIDMCA of 1980 by introducing risk-based deposit insurance premiums in 1993 to reduce excess risk-taking. FDICA also provided for the implementation of a policy of prompt corrective actions (PCA) that allows regulators to close banks more quickly in cases where insolvency is imminent. Thus the ill-advised policy of regulatory forbearance should be curbed. Finally, the act amended the International Banking Act of 1978 by expanding the regulatory oversight powers over foreign banks.20. What is the “common bond” membership qualification under which credit unions havebeen formed and operated? How does this qualification affect the operational objective ofa credit union?The common bond policy allows any one who meets a specific membership requirement to become a member of the credit union. The requirement normally is tied to a place of employment. Because the common bond policy has been loosely interpreted, implementation has allowed credit union membership and assets to grow at a rate that exceeds similar growth inthe commercial banking industry. Since credit unions are mutual organizations where the members are owners, employees essentially use saving deposits to make loans to other employees who need funds.21. What are the operating advantages of credit unions that have caused concern bycommercial bankers? What has been the response of the Credit Union NationalAssociation to the bank criticisms?Credit unions are tax-exempt organizations that often are provided office space by employers at no cost. As a result, because non-interest operating costs are very low, credit unions can lend money at lower rates and pay higher rates on savings deposits than can commercial banks. CUNA has responded that the cost to tax payers from the tax-exempt status is replaced by the additional social good created by the benefits to the members.22. How does the asset structure of credit unions compare with the asset structure ofcommercial banks and savings and loan associations? Refer to Tables 2-5, 2-9, and 2-12 to formulate your answer.The relative proportions of credit union assets are more similar to commercial banks than savings associations, with 20 percent in investment securities and 63 percent in loans. However, nonmortgage loans of credit unions are predominantly consumer loans. On the liability side of the balance sheet, credit unions differ from banks in that they have less reliance on large time deposits, and they differ from savings associations in that they have virtually no borrowings from any source. The primary sources of funds for credit unions are transaction and small time and savings accounts.23. Compare and contrast the performance of the U.S. depository institution industry withthose of Japan, China, and Germany.The entire Japanese financial system was under increasing pressure from the early 1990s as the economy suffered from real estate and other commercial industry pressures. The Japanese government has used several financial aid packages in attempts to avert a collapse of the Japanese financial system. Most attempts have not been successful.The deterioration in the banking industry in China in the early 2000s was caused by nonperforming loans and credits. The remedies include the opportunity for more foreign bank ownership in the Chinese banking environment primarily via larger ownership positions, less restrictive capital requirements for branches, and increased geographic presence.German banks also had difficulties in the early 2000s, but the problems were not universal. The large banks suffered from credit problems, but the small banks enjoyed high credit ratings and low cast of funds because of government guarantees on their borrowing. Thus while small banks benefited from growth in small business lending, the large banks became reliant on fee and trading income.。

金融机构管理 课后习题答案

金融机构管理 课后习题答案

Chapter OneWhy Are Financial Intermediaries Special?Chapter OutlineIntroductionFinancial Intermediaries’ Specialness•Information Costs•Liquidity and Price Risk•Other Special ServicesOther Aspects of Specialness•The Transmission of Monetary Policy•Credit Allocation•Intergenerational Wealth Transfers or Time Intermediation •Payment Services•Denomination IntermediationSpecialness and Regulation•Safety and Soundness Regulation•Monetary Policy Regulation•Credit Allocation Regulation•Consumer Protection Regulation•Investor Protection Regulation•Entry RegulationThe Changing Dynamics of Specialness•Trends in the United States•Future Trends•Global IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1. Identify and briefly explain the five risks common to financial institutions.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front information costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would have to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3. Identify and explain three economic disincentives that probably would dampen the flow offunds between household savers of funds and corporate users of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a result, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those households willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4. Identify and explain the two functions in which FIs may specialize that enable the smoothflow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can benefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which help reduce information costs, such as full-line firms like Merrill Lynch. The asset transformation function is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities ofcorporations. Thus, FIs take on the costs associated with the purchase of securities.5. In what sense are the financial claims of FIs considered secondary securities, while thefinancial claims of commercial corporations are considered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?The funds raised by the financial claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly investing in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing the investments directly with the commercial corporation are reduced because of the efficiencies of the FI.6. Explain how financial institutions act as delegated monitors. What secondary benefitsoften accrue to the entire financial system because of this monitoring process?By putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create new products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of funds in the economy.7. What are five general areas of FI specialness that are caused by providing various servicesto sectors of the economy?First, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchased in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8. How do FIs solve the information and related agency costs when household savers investdirectly in securities issued by corporations? What are agency costs?Agency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor theactivities of the borrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the borrower.9. What often is the benefit to the lenders, borrowers, and financial markets in general of thesolution to the information problem provided by the large financial institutions?One benefit to the solution process is the development of new secondary securities that allow even further improvements in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of the firm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to implement.10. How do FIs alleviate the problem of liquidity risk faced by investors who wish to invest inthe securities of corporations?Liquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Yet the banks make long-term loans or invest in illiquid assets because they are able to diversify their portfolios and better monitor the performance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without accepting the liquidity risk of direct investment.11. How do financial institutions help individual savers diversify their portfolio risks? Whichtype of financial institution is best able to achieve this goal?Money placed in any financial institution will result in a claim on a more diversified portfolio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investments in many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the fund’s investment in a wide array of stocks and fixed income securities.12. How can financial institutions invest in high-risk assets with funding provided by low-riskliabilities from savers?Diversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13. How can individual savers use financial institutions to reduce the transaction costs ofinvesting in financial assets?By pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14. What is maturity intermediation? What are some of the ways in which the risks ofmaturity intermediation are managed by financial intermediaries?If net borrowers and net lenders have different optimal time horizons, FIs can service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI can reduce maturity risk exposure by utilizing liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15. What are five areas of institution-specific FI specialness, and which types of institutions aremost likely to be the service providers?First, commercial banks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditionally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutual funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16. How do depository institutions such as commercial banks assist in the implementation andtransmission of monetary policy?The Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasury securities by the Fed involves the banks in the implementation of monetary policy in a less direct manner.17. What is meant by credit allocation regulation? What social benefit is this type ofregulation intended to provide?Credit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially important. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms moreviable leads to a more stable and productive society.18. Which intermediaries best fulfill the intergenerational wealth transfer function? What isthis wealth transfer process?Life insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger generations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19. What are two of the most important payment services provided by financial institutions?To what extent do these services efficiently provide benefits to the economy?The two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and potentially the international level.20. What is denomination intermediation? How do FIs assist in this process?Denomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest small amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore small investors can benefit in the returns and low risk which these assets typically offer.21. What is negative externality? In what ways do the existence of negative externalities justifythe extra regulatory attention received by financial institutions?A negative externality refers to the action by one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion effect that can arise when the failure of one FI can cast doubt on the solvency of other institutions in that industry.22. If financial markets operated perfectly and costlessly, would there be a need forfinancial intermediaries?To a certain extent, financial intermediation exists because of financial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits tointermediation, such as the transmission of monetary policy or credit allocation, then FIs would exist even in the absence of financial market imperfections.23. What is mortgage redlining?Mortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a red pencil.24. Why are FIs among the most regulated sectors in the world? When is netregulatory burden positive?FIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately raises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation.Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI are generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not exist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costs add to private operating costs. To the extent that these additional costs help to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25. What forms of protection and regulation do regulators of FIs impose to ensuretheir safety and soundness?Regulators have issued several guidelines to insure the safety and soundness of FIs:a. FIs are required to diversify their assets. For example, banks cannot lend morethan 10 percent of their equity to a single borrower.b. FIs are required to maintain minimum amounts of capital to cushion anyunexpected losses. In the case of banks, the Basle standards require a minimum core and supplementary capital of 8 percent of their risk-adjusted assets.c. Regulators have set up guaranty funds such as BIF for commercial banks, SIPCfor securities firms, and state guaranty funds for insurance firms to protectindividual investors.d. Regulators also engage in periodic monitoring and surveillance, such as on-siteexaminations, and request periodic information from the FIs.26. In the transmission of monetary policy, what is the difference between insidemoney and outside money? How does the Federal Reserve Board try to control the amount of inside money? How can this regulatory position create a cost for the depository financial institutions?Outside money is that part of the money supply directly produced and controlled by the Fed, for example, coins and currency. Inside money refers to bank deposits not directly controlled by the Fed. The Fed can influence this amount of money by reserve requirement and discount rate policies. In cases where the level of required reserves exceeds the level considered optimal by the FI, the inability to use the excess reserves to generate revenue may be considered a tax or cost of providing intermediation.27. What are some examples of credit allocation regulation? How can this attemptto create social benefits create costs to the private institution?The qualified thrift lender test (QTL) requires thrifts to hold 65 percent of their assets in residential mortgage-related assets to retain the thrift charter. Some states have enacted usury laws that place maximum restrictions on the interest rates that can be charged on mortgages and/or consumer loans. These types of restrictions often create additional operating costs to the FI and almost certainly reduce the amount of profit that could be realized without such regulation.28. What is the purpose of the Home Mortgage Disclosure Act? What are thesocial benefits desired from the legislation? How does the implementation of this legislation create a net regulatory burden on financial institutions?The HMDA was passed by Congress to prevent discrimination in mortgage lending. The social benefit is to ensure that everyone who qualifies financially is provided the opportunity to purchase a house should they so desire. The regulatory burden has been to require a written statement indicating the reasons why credit was or was not granted. Since 1990, the federal regulators have examined millions of mortgage transactions from more than 7,700 institutions each calendar quarter.29. What legislation has been passed specifically to protect investors who use investment banksdirectly or indirectly to purchase securities? Give some examples of the types of abuses for which protection is provided.The Securities Acts of 1933 and 1934 and the Investment Company Act of 1940 were passed byCongress to protect investors against possible abuses such as insider trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities.30. How do regulations regarding barriers to entry and the scope of permitted activities affectthe charter value of financial institutions?The profitability of existing firms will be increased as the direct and indirect costs of establishing competition increase. Direct costs include the actual physical and financial costs of establishing a business. In the case of FIs, the financial costs include raising the necessary minimum capital to receive a charter. Indirect costs include permission from regulatory authorities to receive a charter. Again in the case of FIs this cost involves acceptable leadership to the regulators. As these barriers to entry are stronger, the charter value for existing firms will be higher.31. What reasons have been given for the growth of investment companies at the expense of“traditional” banks and insurance companies?The recent growth of investment companies can be attributed to two major factors: a. Investors have demanded increased access to direct securities markets.Investment companies and pension funds allow investors to take positions indirect securities markets while still obtaining the risk diversification, monitoring, and transactional efficiency benefits of financial intermediation. Some experts would argue that this growth is the result of increased sophistication on the part of investors; others would argue that the ability to use these markets has caused the increased investor awareness. The growth in these assets is inarguable.b. Recent episodes of financial distress in both the banking and insuranceindustries have led to an increase in regulation and governmental oversight,thereby increasing the net regulatory burden of “traditional” companies. Assuch, the costs of intermediation have increased, which increases the cost ofproviding services to customers.32. What are some of the methods which banking organizations have employed to reduce thenet regulatory burden? What has been the effect on profitability?Through regulatory changes, FIs have begun changing the mix of business products offered to individual users and providers of funds. For example, banks have acquired mutual funds, have expanded their asset and pension fund management businesses, and have increased the security underwriting activities. In addition, legislation that allows banks to establish branches anywhere in the United States has caused a wave of mergers. As the size of banks has grown, an expansion of possible product offerings has created the potential for lower service costs. Finally, the emphasis in recent years has been on products that generate increases in fee income, and the entire banking industry has benefited from increased profitability in recent years.33. What characteristics of financial products are necessary for financial markets to becomeefficient alternatives to financial intermediaries? Can you give some examples of the commoditization of products which were previously the sole property of financial institutions?Financial markets can replace FIs in the delivery of products that (1) have standardized terms, (2) serve a large number of customers, and (3) are sufficiently understood for investors to be comfortable in assessing their prices. When these three characteristics are met, the products often can be treated as commodities. One example of this process is the migration of over-the-counter options to the publicly traded option markets as trading volume grows and trading terms become standardized.34. In what way has Regulation 144A of the Securities and Exchange Commission provided anincentive to the process of financial disintermediation?Changing technology and a reduction in information costs are rapidly changing the nature of financial transactions, enabling savers to access issuers of securities directly. Section 144A of the SEC is a recent regulatory change that will facilitate the process of disintermediation. The private placement of bonds and equities directly by the issuing firm is an example of a product that historically has been the domain of investment bankers. Although historically private placement assets had restrictions against trading, regulators have given permission for these assets to trade among large investors who have assets of more than $100 million. As the market grows, this minimum asset size restriction may be reduced.Chapter TwoThe Financial Services Industry: Depository InstitutionsChapter OutlineIntroductionCommercial Banks•Size, Structure, and Composition of the Industry•Balance Sheet and Recent Trends•Other Fee-Generating Activities•Regulation•Industry PerformanceSavings Institutions•Savings Associations (SAs)•Savings Banks•Recent Performance of Savings Associations and Savings BanksCredit Unions•Size, Structure, and Composition of the Industry and Recent Trends•Balance Sheets•Regulation•Industry PerformanceGlobal Issues: Japan, China, and GermanySummaryAppendix 2A: Financial Statement Analysis Using a Return on Equity (ROE) FrameworkAppendix 2B: Depository Institutions and Their RegulatorsAppendix 3B: Technology in Commercial BankingSolutions for End-of-Chapter Questions and Problems: Chapter Two1.What are the differences between community banks, regional banks, andmoney-center banks? Contrast the business activities, location, and markets of each of these bank groups.Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2003, 94.5 percent of the banks in the United States were classified as community banks. However, these banks held only 14.6 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds.Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers.Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail branch systems, and most regional banks are major participants in foreign currency markets. These banks compete with the larger regional banks for large commercial loans and with international banks for international commercial loans. Most money center banks have headquarters in New York City.e the data in Table 2-4 for the banks in the two asset size groups (a) $100million-$1 billion and (b) over $10 billion to answer the following questions.a. Why have the ratios for ROA and ROE tended to increase for both groupsover the 1990-2003 period? Identify and discuss the primary variables thataffect ROA and ROE as they relate to these two size groups.The primary reason for the improvements in ROA and ROE in the late 1990smay be related to the continued strength of the macroeconomy that allowedbanks to operate with a reduced regard for bad debts, or loan charge-offproblems. In addition, the continued low interest rate environment hasprovided relatively low-cost sources of funds, and a shift toward growth in fee income has provided additional sources of revenue in many product lines.。

Chap004金融机构管理课后题答案

Chap004金融机构管理课后题答案

Chapter FourThe Financial Services Industry: Securities Firms and Investment BanksChapter OutlineIntroductionSize, Structure, and Composition of the IndustryBalance Sheet and Recent Trends∙Recent Trends∙Balance SheetRegulationGlobal IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter Four1.Explain how securities firms differ from investment banks. In what ways are they financialintermediaries?Securities firms specialize primarily in the purchase, sale, and brokerage of securities, while investment banks primarily engage in originating, underwriting, and distributing issues of securities. In more recent years, investment banks have undertaken increased corporate finance activities such as advising on mergers, acquisitions, and corporate restructuring. In both cases, these firms act as financial intermediaries in that they bring together economic units who need money with those units who wish to invest money.2. In what ways have changes in the investment banking industry mirrored changes in thecommercial banking industry?First, both industries have seen a concentration of business among the larger firms. This concentration has occurred primarily through the merger and acquisition activities of several of the largest firms. Second, firms in both industries tend to be divided along product line services provided to customers. Some national full-line firms provide service to both retail customers, in the form of brokerage services, and corporate customers, in the form of new issue underwriting. Other national full-line firms specialize in corporate finance and security trading activities. Third, the remaining firms specialize in more limited activities such as discount brokerage, regional full service retail activities, etc. This business line division is not dissimilar to that of the banking industry with money center banks, regional banks, and community banks. Clearly product line overlap occurs between the different firm divisions in each industry.3. What are the different types of firms in the securities industry, and how does each typediffer from the others?The firms in the security industry vary by size and specialization. They include:a) National, full-line firms servicing both retail and corporate clients, such as MerrillLynch.b) National firms specializing in corporate finance and trading, such as Goldman Sachs,Salomon Brothers and Morgan Stanley.c) Securities firms providing investment banking services that are subsidiaries ofcommercial banks. These subsidiaries continue to make inroads into the markets heldby traditional investment banks as the restrictions imposed by the Glass-Steagall Act,which separates commercial banking from investment banking, are slowly removed.d) Specialized discount brokers providing trading services such as the purchase and sale ofstocks, without offering any investment tips, advice or financial counseling.e) Regional securities firms that offer most of the services mentioned above but restricttheir activities to specific geographical locations.4. What are the key activity areas for securities firms? How does each activity area assist inthe generation of profits, and what are the major risks for each area?The seven major activity areas of security firms are:a) Investing: Securities firms act as agents for individuals with funds to invest byestablishing and managing mutual funds and by managing pension funds. The securities firms generate fees that affect directly the revenue stream of the co mpanies.b) Investment Banking: Investment banks specialize in underwriting and distributing bothdebt and equity issues in the corporate market. New issues can be placed eitherprivately or publicly and can represent either a first issued (IPO) or a secondary issue.Secondary issues of seasoned firms typically will generate lower fees than an IPO. In aprivate offering the investment bank receives a fee for acting as the agent in thetransaction. In best-efforts public offerings, the firm acts as the agent and receives a fee based on the success of the offering. The firm serves as a principal by actually takesownership of the securities in a firm commitment underwriting. Thus the risk of loss ishigher. Finally, the firm may perform similar functions in the government markets andthe asset-backed derivative markets. In all cases, the investment bank receives feesrelated to the difficulty and risk in placing the issue.c) Market Making: Security firms assist in the market-making function by acting asbrokers to assist customers in the purchase or sale of an asset. In this capacity the firmsare providing agency transactions for a fee. Security firms also take inventory positions in assets in an effort to profit on the price movements of the securities. These principalpositions can be profitable if prices increase, but they can also create downside risk involatile markets.d) Trading: Trading activities can be conducted on behalf of a customer or the firm. Theactivities usually involve position trading, pure arbitrage, risk arbitrage, and programtrading. Position trading involves the purchase of large blocks of stock to facilitate thesmooth functioning of the market. Pure arbitrage involves the purchase andsimultaneous sale of an asset in different markets because of different prices in the twomarkets. Risk arbitrage involves establishing positions prior to some anticipatedinformation release or event. Program trading involves positioning with the aid ofcomputers and futures contracts to benefit from small market movements. In each case, the potential risk involves the movements of the asset prices, and the benefits are aidedby the lack of most transaction costs and the immediate information that is available toinvestment banks.e) Cash Management: Cash management accounts are checking accounts that earn interestand may be covered by FDIC insurance. The accounts have been beneficial inproviding full-service financial products to customers, especially at the retail level.f) Mergers and Acquisitions: Most investment banks provide advice to corporate clientswho are involved in mergers and acquisitions. This activity has been extremelybeneficial from a fee standpoint during the 1990s.g) Back-Office Service Functions: Security firms offer clearing and settlement services,research and information services, and other brokerage services on a fee basis.5. What is the difference between an IPO and a secondary issue?An IPO is the first time issue of a company’s securities, whereas a secondary offering is a new issue of a security that is already offered.6. What is the difference between a private-placement and a public offering?A public offering represents the sale of a security to the public at large. A private placement involves the sale of securities to one or several large investors such as an insurance company or a pension fund.7. What are the risk implications to the investment banker from underwriting on a best-effortsbasis versus a firm commitment basis? If you operated a company issuing stock for the first time, which type of underwriting would you prefer? Why? What factors may cause you to choose the alternative?In a best efforts underwriting, the investment banker acts as an agent of the company issuing the security and receives a fee based on the number of securities sold. With a firm commitment underwriting, the investment banker purchases the securities from the company at a negotiated price and sells them to the investing public at what it hopes will be a higher price. Thus the investment banker has greater risk with the firm commitment underwriting, since the investment banker will absorb any adverse price movements in the security before the entire issue is sold. Factors causing preference to the issuing firm include general volatility in the market, stability and maturity of the financial health of the issuing firm, and the perceived appetite for new issues in the market place. The investment bank will also consider these factors when negotiating the fees and/or pricing spread in making its decision regarding the offering process.8. How do agency transactions differ from principal transactions for market makers?Agency transactions are done on behalf of a customer. Thus the investment banker is acting as a stockbroker, and the company earns a fee or commission. In a principal transaction, the investment bank is trading on its own account. In this case the profit is made from the difference in the price that the company pays for the security and the price at which it is sold. In the first case the company bears no risk, but in the second case the company is risking its own capital. 9. An investment banker agrees to underwrite a $500,000,000, ten-year, 8 percent semiannualbond issue for KDO Corporation on a firm commitment basis. The investment banker pays KDO on Thursday and plans to begin a public sale on Friday. What type of interest rate movement does the investment bank fear while holding these securities? If interest rates rise 0.05 percent, or 5 basis points, overnight, what will be the impact on the profits of the investment banker? What if the market interest rate falls 5 basis points?An increase in interest rates will cause the value of the bonds to fall. If rates increase 5 basis points over night, the bonds will lose $1,695,036.32 in value. The investment banker will absorb the decrease in market value, since the issuing firm already has received its payment for the bonds. If market rates decrease by 5 basis points, the investment banker will benefit by the $1,702,557.67 increase in market value of the bonds. These two changes in price can be found with the following two equations respectively:000,000,500$000,000,500$000,000,20$32.036,695,1$20%,025.420%,025.4-+=-====n i n i PV PVA000,000,500$000,000,500$000,000,20$67.557,702,1$20%,975.320%,975.3-+=====n i n i PV PVA10. An investment banker pays $23.50 per share for 4,000,000 shares of JCN Company. Itthen sells these shares to the public for $25 per share. How much money does JCN receive? What is the profit to the investment banker? What is the stock price of JCN?JCN receives $23.50 x 4,000,000 shares = $94,000,000. The profit to the investment bank is ($25.00 - $23.50) x 4,000,000 shares = $6,000,000. The stock price of JCN is $25.00 since that is what the public must pay. From the perspective of JCN, the $6,000,000 represents the commission that it must pay to issue the stock.11. XYZ, Inc. has issued 10,000,000 new shares. An investment banker agrees to underwritethese shares on a best-efforts basis. The investment banker is able to sell 8,400,000 shares for $27 per share, and it charges XYZ $0.675 per share sold. How much money does XYZ receive? What is the profit to the investment banker? What is the stock price of XYZ?XYZ receives $226,800,000, the investment banker’s profit is $5,670,000, and the stock price is $27 per share since that is what the public pays. The net proceeds after commission to XYZ is $221,130,000.12. One of the major activity areas of securities firms is trading.a. What is the difference between pure arbitrage and risk arbitrage?Pure arbitrage involves the buying and selling of similar assets trading at different prices.Pure arbitrage has a lock or assurance of the profits that are available in the market. This profit position usually occurs with no equity investment, the use of only very short-term borrowed funds, and reduced transaction costs for securities firms.Risk arbitrage also is based on the principle of buying low and selling high a similar asset(or an asset with the same payoff). The difference between risk arbitrage and pure arbitrage is that the prices are not locked in, leaving open a certain speculative component that could result in real economic losses.b. What is the difference between position trading and program trading?Position trading involves the purchase of large blocks of stock for the purpose of providing consistency and continuity to the secondary markets. In most cases, these trades are held in inventory for a period of time, either after or prior to the trade. Program trading involves the ability to buy or sell entire portfolios of stocks quickly and often times simultaneously in an effort to capture differences between the actual futures price of a stock index and the theoretically correct price. The program trading process is useful when conducting index arbitrage. If the futures price were too high, an arbitrager would short the futures contract and buy the stocks in the underlying index. The program trading process in effect is acoordinated trading program that allows for this arbitrage process to be accomplished. 13. If an investor observes that the price of a stock trading in one exchange is different fromthe price in another exchange, what form of arbitrage is applicable, and how can theinvestor participate in that arbitrage?The investor should short sell the more expensive asset and use the proceeds to purchase the cheaper stock to lock in a given spread. This transaction would be an example of a pure arbitrage rather than risk arbitrage. The actual spread realized would be affected by theamount of transaction costs involved in executing the transactions.14. An investor notices that an ounce of gold is priced at $318 in London and $325 in NewYork.a. What action could the investor take to try to profit from the price discrepancy?An investor would try to buy gold in London at $318 and sell it in New York for $325yielding a riskless profit of $7 per ounce.b. Under which of the four trading activities would this action be classified?This transaction is an example of pure arbitrage.c. If the investor is correct in identifying the discrepancy, what pattern should the twoprices take in the short-term future?The prices of gold in the two separate markets should converge or move toward each other.In all likelihood the prices will not become exactly the same. It does not matter whichprice moves most, since the investor should unwind both positions when the prices arenearly equal.d. What may be some impediments to the success of the transaction?The success or profitability of this arbitrage opportunity will depend on transaction costs and the speed at which the investor can execute the transactions. If the price disparity is sufficiently large, other investors will seize the opportunity to attempt to achieve the same arbitrage results, thus causing the prices to converge quickly.15. What three factors are given credit for the steady decline in brokerage commissions as apercent of total revenues over the period beginning in 1977 and ending in 1991?The reasons often offered for the decline in brokerage commissions over the last twenty years are the abolition of fixed commissions by the SEC in 1975, the resulting competition among firms, and the stock market crash of 1987. The stock market crash caused a decline in the amount of equity and debt underwriting which subsequently had a negative effect on income. Although the equity markets have rebounded during the 1990s, the continued growth of discount brokerage firms by depository institutions and the advances of electronic trade will likely affect commissions for an extended period of time.16. What factors are given credit for the resurgence of profitability in the securities industrybeginning in 1991? Are firms that trade in fixed-income securities more or less likely to have volatile profits? Why?Profits for securities firms increased beginning in 1991 because of (a) the resurgence of stock markets and trading volume, (b) increases in the profits of fixed-income trading, and (c) increased growth in the underwriting of new issues, especially corporate debt issues.However, profits from trading in fixed-income instruments are volatile, especially if interest rate changes are rather common. Hence, even though profits in fixed-income trading were up in 1993, they declined in 1994 because interest rates increased quite suddenly. Many firms with exposed interest rate instruments reported large losses.17. Using Table 4-6, which type of security accounts for most underwriting in the UnitedStates? Which is likely to be more costly to underwrite: corporate debt or equity? Why?According to Table 4-6, debt issues were greater than equity issues by a ratio of roughly four to one in the middle 1980s and a ratio of sixteen to one in the early 2000s. Debt is less risky than equity, so there is less risk of an adverse price movement with debt compared to equity. Further, debt is more likely to be bought in larger blocks by fewer investors, a transaction characteristic that makes the selling process less costly.18. How do the operating activities, and thus the balance sheet structures, of securities firmsdiffer from the operating activities of depository institutions such as commercial banks and insurance firms? How are the balance sheet structures of securities firms similar to other financial intermediaries?The short-term nature of many of the assets in the portfolios of securities firms demonstrates that an important activity is trading/brokerage. As a broker, the securities firm receives a commission for handling the trade but does not take either an asset or liability position. Thus, many of the assets appearing on the balance sheets of securities firms are cash-like money market instruments, not capital market positions. In the case of commercial banks, assets tend to be medium term from the lending position of the banks. Insurance company assets tend to be invested reserves caused by the longer-term liabilities on the balance sheet.A major similarity between securities firms and all other types of FIs is a high degree of financial leverage. That is, all of these firms use high levels of debt that is used to finance an asset portfolio consisting primarily of financial securities. A difference in the funding is that securities firms tend to use liabilities that are extremely short term (see the balance sheet in Table 4-7). Nearly 33 percent of the total liability financing is payables incurred in the transaction process. In contrast, depository institutions have fixed-term time and savings deposit liabilities and life insurance companies have long-term policy reserves.19. Based on the data in Table 4-7, what were the second largest single asset and the largestsingle liability of securities firms in 2003? Are these asset and liability categories re lated?Exactly how does a repurchase agreement work?The second largest asset category was a reverse repurchase agreement, and the largest liability was a repurchase agreement. When a financial institution needs to borrow funds, one source is to sell an asset. In the case of financial assets, the institution often finds it more beneficial to sell the asset under an agreement to repurchase the asset at a later time. In this case, the current money market rate of interest is built into the agreed upon repurchase price, and the asset literally does not leave the balance sheet of the borrowing institution. The borrowing institution receives cash and a liability representing the agreement to repurchase. The lending institution, which has excess funds, replaces cash as an asset with the reverse repurchase agreement.20. How did the National Securities Markets Improvement Act of 1996 (NSMIA) change theregulatory structure of the securities industry?The NSMIA removed most of the regulatory burden that had been imposed by individual states, effectively giving the SEC exclusive regulatory jurisdiction over securities firms.21. Identify the major regulatory organizations that are involved with the daily operations ofthe investment securities industry, and explain their role in providing smoothly operating markets.The New York Stock Exchange and the National Association of Securities Dealers monitor trading abuses and the capital solvency of securities firms. The SEC provides governance in the area of underwriting and trading activities of securities firms, and the Securities Investory Protection Corporation protects investors against losses up to $500,000 when those losses have been caused by the failure of securities firms.22. What are the three requirements of the U.S.A. Patriot Act that financial service firms mustimplement after October 1, 2003?FIs must (1) verify the identity of people opening new accounts; (2) maintain records of the information used to verify the identity; and (3) determine whether the person opening an account is on a suspected terrorist list.。

Chap001--金融机构习题解答Word版

Chap001--金融机构习题解答Word版

Chapter OneWhy Are Financial Intermediaries Special?Chapter OutlineIntroductionFinancial Intermediaries’ Specialness•Information Costs•Liquidity and Price Risk•Other Special ServicesOther Aspects of Specialness•The Transmission of Monetary Policy•Credit Allocation•Intergenerational Wealth Transfers or Time Intermediation•Payment Services•Denomination IntermediationSpecialness and Regulation•Safety and Soundness Regulation•Monetary Policy Regulation•Credit Allocation Regulation•Consumer Protection Regulation•Investor Protection Regulation•Entry RegulationThe Changing Dynamics of Specialness•Trends in the United States•Future Trends•Global IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1. Identify and briefly explain the five risks common to financialinstitutions.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front information costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would have to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3. Identify and explain three economic disincentives that probably woulddampen the flow of funds between household savers of funds and corporate users of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a result, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those households willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4. Identify and explain the two functions in which FIs may specialize thatenable the smooth flow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can benefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which helpreduce information costs, such as full-line firms like Merrill Lynch. The asset transformation function is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities of corporations. Thus, FIs take on the costs associated with the purchase of securities.5. In what sense are the financial claims of FIs considered secondarysecurities, while the financial claims of commercial corporations areconsidered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?The funds raised by the financial claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly investing in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing theinvestments directly with the commercial corporation are reduced because ofthe efficiencies of the FI.6. Explain how financial institutions act as delegated monitors. Whatsecondary benefits often accrue to the entire financial system because of this monitoring process?By putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create new products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of funds in the economy.7. What are five general areas of FI specialness that are caused byproviding various services to sectors of the economy?First, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchased in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8. How do FIs solve the information and related agency costs when householdsavers invest directly in securities issued by corporations? What areagency costs?Agency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor the activities of the borrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the borrower.9. What often is the benefit to the lenders, borrowers, and financialmarkets in general of the solution to the information problem provided by the large financial institutions?One benefit to the solution process is the development of new secondary securities that allow even further improvements in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of thefirm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to implement.10. How do FIs alleviate the problem of liquidity risk faced by investors whowish to invest in the securities of corporations?Liquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Yet the banks make long-term loans or invest in illiquid assetsbecause they are able to diversify their portfolios and better monitor the performance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without accepting the liquidity risk of direct investment.11. How do financial institutions help individual savers diversify theirportfolio risks? Which type of financial institution is best able toachieve this goal?Money placed in any financial institution will result in a claim on a more diversified portfolio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investmentsin many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the fund’s investment in a wide array of stocks and fixed income securities.12. How can financial institutions invest in high-risk assets with fundingprovided by low-risk liabilities from savers?Diversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13. How can individual savers use financial institutions to reduce thetransaction costs of investing in financial assets?By pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14. What is maturity intermediation? What are some of the ways in which therisks of maturity intermediation are managed by financial intermediaries?If net borrowers and net lenders have different optimal time horizons, FIscan service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI canreduce maturity risk exposure by utilizing liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15. What are five areas of institution-specific FI specialness, and whichtypes of institutions are most likely to be the service providers?First, commercial banks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditionally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutual funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16. How do depository institutions such as commercial banks assist in theimplementation and transmission of monetary policy?The Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasurysecurities by the Fed involves the banks in the implementation of monetary policy in a less direct manner.17. What is meant by credit allocation regulation? What social benefit isthis type of regulation intended to provide?Credit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially important. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms more viable leads to a more stable and productive society.18. Which intermediaries best fulfill the intergenerational wealth transferfunction? What is this wealth transfer process?Life insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger generations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19. What are two of the most important payment services provided by financialinstitutions? To what extent do these services efficiently providebenefits to the economy?The two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and potentially the international level.20. What is denomination intermediation? How do FIs assist in this process?Denomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest small amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore small investors can benefit in the returns and low risk which these assets typically offer.21. What is negative externality? In what ways do the existence of negativeexternalities justify the extra regulatory attention received byfinancial institutions?A negative externality refers to the action by one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion effect that can arise when the failure of one FI can cast doubt on the solvency of otherinstitutions in that industry.22. If financial markets operated perfectly and costlessly, would there be aneed for financial intermediaries?To a certain extent, financial intermediation exists because of financial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits to intermediation, such as the transmission of monetary policy or credit allocation, then FIs would exist even in the absence of financial market imperfections.23. What is mortgage redlining?Mortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a red pencil.24. Why are FIs among the most regulated sectors in the world? When is netregulatory burden positive?FIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately raises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation.Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI are generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not exist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costsadd to private operating costs. To the extent that these additional costs help to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25. What forms of protection and regulation do regulators of FIs impose toensure their safety and soundness?Regulators have issued several guidelines to insure the safety and soundness of FIs:a. FIs are required to diversify their assets. For example, banks cannotlend more than 10 percent of their equity to a single borrower.b. FIs are required to maintain minimum amounts of capital to cushion anyunexpected losses. In the case of banks, the Basle standards require aminimum core and supplementary capital of 8 percent of their risk-adjusted assets.c. Regulators have set up guaranty funds such as BIF for commercial banks,SIPC for securities firms, and state guaranty funds for insurance firms to protect individual investors.d. Regulators also engage in periodic monitoring and surveillance, such ason-site examinations, and request periodic information from the FIs.26. In the transmission of monetary policy, what is the difference betweeninside money and outside money? How does the Federal Reserve Board try to control the amount of inside money? How can this regulatory position create a cost for the depository financial institutions?Outside money is that part of the money supply directly produced andcontrolled by the Fed, for example, coins and currency. Inside money refers to bank deposits not directly controlled by the Fed. The Fed can influence this amount of money by reserve requirement and discount rate policies. In cases where the level of required reserves exceeds the level considered optimal by the FI, the inability to use the excess reserves to generate revenue may be considered a tax or cost of providing intermediation.27. What are some examples of credit allocation regulation? How can thisattempt to create social benefits create costs to the private institution?The qualified thrift lender test (QTL) requires thrifts to hold 65 percent of their assets in residential mortgage-related assets to retain the thrift charter. Some states have enacted usury laws that place maximum restrictions on the interest rates that can be charged on mortgages and/or consumer loans. These types of restrictions often create additional operating costs to the FI and almost certainly reduce the amount of profit that could be realized without such regulation.28. What is the purpose of the Home Mortgage Disclosure Act? What are thesocial benefits desired from the legislation? How does theimplementation of this legislation create a net regulatory burden onfinancial institutions?The HMDA was passed by Congress to prevent discrimination in mortgage lending. The social benefit is to ensure that everyone who qualifies financially is provided the opportunity to purchase a house should they so desire. The regulatory burden has been to require a written statement indicating the reasons why credit was or was not granted. Since 1990, the federal regulators have examined millions of mortgage transactions from more than 7,700institutions each calendar quarter.29. What legislation has been passed specifically to protect investors whouse investment banks directly or indirectly to purchase securities? Give some examples of the types of abuses for which protection is provided.The Securities Acts of 1933 and 1934 and the Investment Company Act of 1940 were passed by Congress to protect investors against possible abuses such as insider trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities.30. How do regulations regarding barriers to entry and the scope of permittedactivities affect the charter value of financial institutions?The profitability of existing firms will be increased as the direct andindirect costs of establishing competition increase. Direct costs include the actual physical and financial costs of establishing a business. In the case of FIs, the financial costs include raising the necessary minimum capital to receive a charter. Indirect costs include permission from regulatory authorities to receive a charter. Again in the case of FIs this cost involves acceptable leadership to the regulators. As these barriers to entry are stronger, the charter value for existing firms will be higher.31. What reasons have been given for the growth of investment companies atthe expense of “traditional” banks and insurance companies?The recent growth of investment companies can be attributed to two major factors:a. Investors have demanded increased access to direct securities markets.Investment companies and pension funds allow investors to take positions in direct securities markets while still obtaining the riskdiversification, monitoring, and transactional efficiency benefits offinancial intermediation. Some experts would argue that this growth isthe result of increased sophistication on the part of investors; otherswould argue that the ability to use these markets has caused theincreased investor awareness. The growth in these assets is inarguable.b. Recent episodes of financial distress in both the banking and insuranceindustries have led to an increase in regulation and governmentaloversight, thereby increasing the net regulatory burden of“traditional” companies. As such, the costs of intermediation haveincreased, which increases the cost of providing services to customers.32. What are some of the methods which banking organizations have employed toreduce the net regulatory burden? What has been the effect onprofitability?Through regulatory changes, FIs have begun changing the mix of businessproducts offered to individual users and providers of funds. For example, banks have acquired mutual funds, have expanded their asset and pension fund management businesses, and have increased the security underwriting activities. In addition, legislation that allows banks to establish branches anywhere inthe United States has caused a wave of mergers. As the size of banks has grown, an expansion of possible product offerings has created the potentialfor lower service costs. Finally, the emphasis in recent years has been on products that generate increases in fee income, and the entire bankingindustry has benefited from increased profitability in recent years.33. What characteristics of financial products are necessary for financialmarkets to become efficient alternatives to financial intermediaries?Can you give some examples of the commoditization of products which were previously the sole property of financial institutions?Financial markets can replace FIs in the delivery of products that (1) have standardized terms, (2) serve a large number of customers, and (3) are sufficiently understood for investors to be comfortable in assessing their prices. When these three characteristics are met, the products often can betreated as commodities. One example of this process is the migration of over-the-counter options to the publicly traded option markets as trading volume grows and trading terms become standardized.34. In what way has Regulation 144A of the Securities and Exchange Commissionprovided an incentive to the process of financial disintermediation?Changing technology and a reduction in information costs are rapidly changing the nature of financial transactions, enabling savers to access issuers of securities directly. Section 144A of the SEC is a recent regulatory change that will facilitate the process of disintermediation. The private placement of bonds and equities directly by the issuing firm is an example of a product that historically has been the domain of investment bankers. Although historically private placement assets had restrictions against trading, regulators have given permission for these assets to trade among large investors who have assets of more than $100 million. As the market grows, this minimum asset size restriction may be reduced.(注:可编辑下载,若有不当之处,请指正,谢谢!)。

Chap008金融机构管理课后题答案

Chap008金融机构管理课后题答案

Chapter EightInterest Rate Risk IChapter OutlineIntroductionThe Central Bank and Interest Rate RiskThe Repricing ModelRate-Sensitive AssetsRate-Sensitive LiabilitiesEqual Changes in Rates on RSAs and RSLsUnequal Changes in Rates on RSAs and RSLsWeaknesses of the Repricing ModelMarket Value EffectsOveraggregationThe Problem of RunoffsCash Flows from Off-Balance Sheet ActivitiesThe Maturity ModelThe Maturity Model with a Portfolio of Assets and Liabilities Weakness of the Maturity ModelSummaryAppendix 8A: Term Structure of Interest RatesUnbiased Expectations TheoryLiquidity Premium Theory Market Segmentation TheorySolutions for End-of-Chapter Questions and Problems: Chapter Eight1. What was the impact on interest rates of the borrowed reserves targetingregime used by the Federal Reserve from 1982 to 1993The volatility of interest rates was significantly lower than under the nonborrowed reserves target regime used in the three years immediately prior to 1982. Figure 8-1 indicates that both the level and volatility of interest rates declined even further after 1993 when the Fed decided that it would target primarily the fed funds rate as a guide for monetary policy.2. How has the increased level of financial market integration affectedinterest ratesIncreased financial market integration, or globalization, increases the speed with which interest rate changes and volatility are transmitted among countries. The result of this quickening of global economic adjustment is to increase the difficulty and uncertainty faced by the Federal Reserve as it attempts to manage economic activity within the U.S. Further, because FIs have become increasingly more global in their activities, any change in interest rate levels or volatility caused by Federal Reserve actions more quickly creates additional interest rate risk issues for these companies.3. What is the repricing gap In using this model to evaluate interest raterisk, what is meant by rate sensitivity On what financial performance variable does the repricing model focus Explain.The repricing gap is a measure of the difference between the dollar value of assets that will reprice and the dollar value of liabilities that will reprice within a specific time period, where reprice means the potential to receive a new interest rate. Rate sensitivity represents the time interval where repricing can occur. The model focuses on the potential changes in the net interest income variable. In effect, if interest rates change, interest income and interest expense will change as the various assets and liabilities are repriced, that is, receive new interest rates.4. What is a maturity bucket in the repricing model Why is the length oftime selected for repricing assets and liabilities important when using the repricing modelThe maturity bucket is the time window over which the dollar amounts of assets and liabilities are measured. The length of the repricing period determines which of the securities in a portfolio are rate-sensitive. The longer the repricing period, the more securities either mature or need to be repriced, and, therefore, the more the interest rate exposure. An excessively short repricing period omits consideration of the interest rate risk exposure of assets and liabilities are that repriced in the period immediately following the end of the repricing period. That is, it understates the rate sensitivity of the balance sheet. An excessively long repricing period includes many securities that are repriced at different times within the repricing period, thereby overstating the rate sensitivity of the balance sheet.5. Calculate the repricing gap and the impact on net interest income of a 1percent increase in interest rates for each of the following positions:Rate-sensitive assets = $200 million. Rate-sensitive liabilities =$100 million.Repricing gap = RSA - RSL = $200 - $100 million = +$100 million.NII = ($100 million)(.01) = +$ million, or $1,000,000.Rate-sensitive assets = $100 million. Rate-sensitive liabilities =$150 million.Repricing gap = RSA - RSL = $100 - $150 million = -$50 million.NII = (-$50 million)(.01) = -$ million, or -$500,000.Rate-sensitive assets = $150 million. Rate-sensitive liabilities =$140 million.Repricing gap = RSA - RSL = $150 - $140 million = +$10 million.NII = ($10 million)(.01) = +$ million, or $100,000.a. Calculate the impact on net interest income on each of the abovesituations assuming a 1 percent decrease in interest rates.NII = ($100 million) = -$ million, or -$1,000,000.NII = (-$50 million) = +$ million, or $500,000.NII = ($10 million) = -$ million, or -$100,000.b. What conclusion can you draw about the repricing model from theseresultsThe FIs in parts (1) and (3) are exposed to interest rate declines(positive repricing gap) while the FI in part (2) is exposed to interest rate increases. The FI in part (3) has the lowest interest rate riskexposure since the absolute value of the repricing gap is the lowest,while the opposite is true for part (1).6. What are the reasons for not including demand deposits as rate-sensitiveliabilities in the repricing analysis for a commercial bank What is the subtle, but potentially strong, reason for including demand deposits inthe total of rate-sensitive liabilities Can the same argument be madefor passbook savings accountsThe regulatory rate available on demand deposit accounts is zero. Although many banks are able to offer NOW accounts on which interest can be paid, this interest rate seldom is changed and thus the accounts are not really sensitive. However, demand deposit accounts do pay implicit interest in the form of not charging fully for checking and other services. Further, when market interest rates rise, customers draw down their DDAs, which may cause the bank to use higher cost sources of funds. The same or similar arguments can be made for passbook savings accounts.7. What is the gap ratio What is the value of this ratio to interest raterisk managers and regulatorsThe gap ratio is the ratio of the cumulative gap position to the total assets of the bank. The cumulative gap position is the sum of the individual gaps over several time buckets. The value of this ratio is that it tells the direction of the interest rate exposure and the scale of that exposure relative to the size of the bank.8. Which of the following assets or liabilities fit the one-year rate or repricing sensitivity test91-day . Treasury bills Yes1-year . Treasury notes Yes20-year . Treasury bonds No20-year floating-rate corporate bonds with annual repricing Yes30-year floating-rate mortgages with repricing every two years No30-year floating-rate mortgages with repricing every six months YesOvernight fed funds Yes9-month fixed rate CDs Yes1-year fixed-rate CDs Yes5-year floating-rate CDs with annual repricing YesCommon stock No9. Consider the following balance sheet for WatchoverU Savings, Inc. (in millions):Assets Liabilities and EquityFloating-rate mortgages Demand deposits(currently 10% annually) $50 (currently 6% annually) $7030-year fixed-rate loans Time deposits(currently 7% annually) $50 (currently 6% annually $20Equity $10 Total Assets $100 Total Liabilities & Equity$100a. What is WatchoverU’s expected net interest income at year-endCurrent expected interest income:$5m + $3.5m = $8.5m.Expected interest expense: $4.2m + $1.2m = $5.4m.Expected net interest income: $8.5m - $5.4m = $3.1m.b. What will be the net interest income at year-end if interest ratesrise by 2 percentAfter the 200 basis point interest rate increase, net interest incomedeclines to:50 + 50 - 70 - 20(.06) = $9.5m - $6.8m = $2.7m, a decline of $0.4m.c. Using the cumulative repricing gap model, what is the expected netinterest income for a 2 percent increase in interest rates Wachovia’s' repricing or funding gap is $50m - $70m = -$20m. The change in net interest income using the funding gap model is (-$20m) = -$.4m.d.What will be the net interest income at year-end if interest ratesincrease 200 basis points on assets, but only 100 basis points onliabilities Is it reasonable for changes in interest rates to affectbalance sheet in an uneven manner WhyAfter the unbalanced rate increase, net interest income will be 50 +50 - 70 - 20(.06) = $9.5m - $6.1m = $3.4m, an increase of $0.3m. It isnot uncommon for interest rates to adjust in an uneven manner over two sides of the balance sheet because interest rates often do not adjust solely because of market pressures. In many cases the changes areaffected by decisions of management. Thus you can see the difference between this answer and the answer for part a.10. What are some of the weakness of the repricing model How have largebanks solved the problem of choosing the optimal time period forrepricing What is runoff cash flow, and how does this amount affect the repricing model’s analysisThe repricing model has four general weaknesses:(1) It ignores market value effects.(2) It does not take into account the fact that the dollar value of ratesensitive assets and liabilities within a bucket are not similar. Thus, if assets, on average, are repriced earlier in the bucket thanliabilities, and if interest rates fall, FIs are subject to reinvestment risks.(3) It ignores the problem of runoffs, that is, that some assets are prepaidand some liabilities are withdrawn before the maturity date.(4) It ignores income generated from off-balance-sheet activities.Large banks are able to reprice securities every day using their own internal models so reinvestment and repricing risks can be estimated for each day ofthe year.Runoff cash flow reflects the assets that are repaid before maturity and the liabilities that are withdrawn unsuspectedly. To the extent that either of these amounts is significantly greater than expected, the estimated interest rate sensitivity of the bank will be in error.11. Use the following information about a hypothetical government securitydealer named . Jorgan. Market yields are in parenthesis, and amounts are in millions.Assets Liabilities and EquityCash $10 Overnight Repos $1701 month T-bills %) 75 Subordinated debt3 month T-bills %) 75 7-year fixed rate % 1502 year T-notes %) 508 year T-notes %) 1005 year munis (floating rate)% reset every 6 months) 25 Equity 15 Total Assets $335 Total Liabilities & Equity$335a. What is the funding or repricing gap if the planning period is 30 days91 days 2 years Recall that cash is a noninterest-earning asset.Funding or repricing gap using a 30-day planning period = 75 - 170 = -$95 million.Funding gap using a 91-day planning period = (75 + 75) - 170 = -$20 million.Funding gap using a two-year planning period = (75 + 75 + 50 + 25) - 170 = +$55 million.b. What is the impact over the next 30 days on net interest income if allinterest rates rise 50 basis points Decrease 75 basis pointsNet interest income will decline by $475,000. NII = FG(R) = -95(.005) = $0.475m.Net interest income will increase by $712,500. NII = FG(R)= -95(.0075) = $0.7125m.c.The following one-year runoffs are expected: $10 million for two-yearT-notes, and $20 million for eight-year T-notes. What is the one-year repricing gapFunding or repricing gap over the 1-year planning period = (75 + 75 + 10 + 20 + 25) - 170 = +$35 million.d. If runoffs are considered, what is the effect on net interest incomeat year-end if interest rates rise 50 basis points Decrease 75 basispointsNet interest income will increase by $175,000. NII = FG(R) = 35 = $0.175m.Net interest income will decrease by $262,500, NII = FG(R) = 35 = -$0.2625m.12. What is the difference between book value accounting and market valueaccounting How do interest rate changes affect the value of bank assets and liabilities under the two methods What is marking to marketBook value accounting reports assets and liabilities at the original issue values. Current market values may be different from book values because they reflect current market conditions, such as interest rates or prices. This is especially a problem if an asset or liability has to be liquidated immediately. If the asset or liability is held until maturity, then the reporting of book values does not pose a problem.For an FI, a major factor affecting asset and liability values is interestrate changes. If interest rates increase, the value of both loans (assets) and deposits and debt (liabilities) fall. If assets and liabilities are held until maturity, it does not affect the book valuation of the FI. However, ifdeposits or loans have to be refinanced, then market value accounting presents a better picture of the condition of the FI.The process by which changes in the economic value of assets and liabilities are accounted is called marking to market. The changes can be beneficial as well as detrimental to the total economic health of the FI.13. Why is it important to use market values as opposed to book values whenevaluating the net worth of an FI What are some of the advantages ofusing book values as opposed to market valuesBook values represent historical costs of securities purchased, loans made, and liabilities sold. They do not reflect current values as determined by market values. Effective financial decision-making requires up-to-date information that incorporates current expectations about future events. Market values provide the best estimate of the present condition of an FI and serve as an effective signal to managers for future strategies.Book values are clearly measured and not subject to valuation errors, unlike market values. Moreover, if the FI intends to hold the security until maturity, then the security's current liquidation value will not be relevant. That is, the paper gains and losses resulting from market value changes will never be realized if the FI holds the security until maturity. Thus, the changes in market value will not impact the FI's profitability unless the security is sold prior to maturity.14. Consider a $1,000 bond with a fixed-rate 10 percent annual coupon (Cpn %)and a maturity (N) of 10 years. The bond currently is trading to amarket yield to maturity (YTM) of 10 percent. Complete the followingtable.From Par, $ From Par, %N Cpn % YTM Price Change in Price Change in Price8 10% 9% $1, $ %9 10% 9% $1, $ %10 10% 9% $1, $ %10 10% 10% $1,10 10% 11% $ -$ %11 10% 11% $ -$ %12 10% 11% $ -$ %Use this information to verify the principles of interest rate-pricerelationships for fixed-rate financial assets.Rule One: Interest rates and prices of fixed-rate financial assets move inversely. See the change in price from $1,000 to $ for the change in interest rates from 10 percent to 11 percent, or from $1,000 to $1, when rates change from 10 percent to 9 percent.Rule Two: The longer is the maturity of a fixed-income financial asset, the greater is the change in price for a given change in interest rates.A change in rates from 10 percent to 11 percent has caused the 10-yearbond to decrease in value $, but the 11-year bond will decrease in value $, and the 12-year bond will decrease $.Rule Three: The change in value of longer-term fixed-rate financialassets increases at a decreasing rate. For the increase in rates from 10 percent to 11 percent, the difference in the change in price between the 10-year and 11-year assets is $, while the difference in the change in price between the 11-year and 12-year assets is $.Rule Four: Although not mentioned in the text, for a given percentage () change in interest rates, the increase in price for a decrease in ratesis greater than the decrease in value for an increase in rates. Thus for rates decreasing from 10 percent to 9 percent, the 10-year bond increases $. But for rates increasing from 10 percent to 11 percent, the 10-year bond decreases $.15. Consider a 12-year, 12 percent annual coupon bond with a required returnof 10 percent. The bond has a face value of $1,000.a. What is the price of the bondPV = $120*PVIFAi=10%,n=12 + $1,000*PVIFi=10%,n=12= $1,b. If interest rates rise to 11 percent, what is the price of the bondPV = $120*PVIFAi=11%,n=12 + $1,000*PVIFi=11%,n=12= $1,c. What has been the percentage change in priceP = ($1, - $1,/$1, = or – percent.d. Repeat parts (a), (b), and (c) for a 16-year bond.PV = $120*PVIFAi=10%,n=16 + $1,000*PVIFi=10%,n=16= $1,PV = $120*PVIFAi=11%,n=16 + $1,000*PVIFi=11%,n=16= $1,P = ($1, - $1,/$1, = or – percent.e. What do the respective changes in bond prices indicateFor the same change in interest rates, longer-term fixed-rate assets have a greater change in price.16. Consider a five-year, 15 percent annual coupon bond with a face value of$1,000. The bond is trading at a market yield to maturity of 12 percent.a. What is the price of the bondPV = $150*PVIFAi=12%,n=5 + $1,000*PVIFi=12%,n=5= $1,b. If the market yield to maturity increases 1 percent, what will be thebond’s new pricePV = $150*PVIFAi=13%,n=5 + $1,000*PVIFi=13%,n=5= $1,c. Using your answers to parts (a) and (b), what is the percentage changein the bond’s price as a result of the 1 percent increase in interest ratesP = ($1, - $1,/$1, = or – percent.d. Repeat parts (b) and (c) assuming a 1 percent decrease in interestrates.PV = $150*PVIFAi=11%,n=5 + $1,000*PVIFi=11%,n=5= $1,P = ($1, - $1,/$1, = or percente. What do the differences in your answers indicate about the rate-pricerelationships of fixed-rate assetsFor a given percentage change in interest rates, the absolute value of the increase in price caused by a decrease in rates is greater than the absolute value of the decrease in price caused by an increase in rates.17. What is maturity gap How can the maturity model be used to immunize anFI’s portfolio What is the critical requirement to allow maturitymatching to have some success in immunizing the balance sheet of an FIMaturity gap is the difference between the average maturity of assets and liabilities. If the maturity gap is zero, it is possible to immunize the portfolio, so that changes in interest rates will result in equal but offsetting changes in the value of assets and liabilities and net interest income. Thus, if interest rates increase (decrease), the fall (rise) in the value of the assets will be offset by a perfect fall (rise) in the value of the liabilities. The critical assumption is that the timing of the cash flows on the assets and liabilities must be the same.18. Nearby Bank has the following balance sheet (in millions):Assets Liabilities and EquityCash $60 Demand deposits $1405-year treasury notes $60 1-year Certificates of Deposit $160 30-year mortgages $200 Equity $20Total Assets $320 Total Liabilities and Equity$320What is the maturity gap for Nearby Bank Is Nearby Bank more exposed to an increase or decrease in interest rates Explain whyM A = [0*60 + 5*60 + 200*30]/320 = years, and ML= [0*140 + 1*160]/300 = .Therefore the maturity gap = MGAP = – = years. Nearby bank is exposed toan increase in interest rates. If rates rise, the value of assets will decrease much more than the value of liabilities.19. County Bank has the following market value balance sheet (in millions,annual rates):Assets Liabilities and EquityCash $20 Demand deposits $10015-year commercial loan @ 10% 5-year CDs @ 6% interest,interest, balloon payment $160 balloon payment $21030-year Mortgages @ 8% interest, 20-year debentures @ 7% interest$120monthly amortizing $300 Equity $50Total Assets $480 Total Liabilities & Equity $480a. What is the maturity gap for County BankMA= [0*20 + 15*160 + 30*300]/480 = years.ML= [0*100 + 5*210 + 20*120]/430 = years.MGAP = – = years.b. What will be the maturity gap if the interest rates on all assets andliabilities increase by 1 percentIf interest rates increase one percent, the value and average maturity of the assets will be:Cash = $20Commercial loans = $16*PVIFAn=15, i=11% + $160*PVIFn=15,i=11%= $Mortgages = $,294*PVIFAn=360,i=9%= $MA= [0*20 + *15 + *30]/(20 + + = yearsThe value and average maturity of the liabilities will be: Demand deposits = $100CDs = $*PVIFAn=5,i=7% + $210*PVIFn=5,i=7%= $Debentures = $*PVIFAn=20,i=8% + $120*PVIFn=20,i=8%= $ML= [0*100 + 5* + 20*]/(100 + + = yearsThe maturity gap = MGAP = – = years. The maturity gap increased because the average maturity of the liabilities decreased more than the average maturity of the assets. This result occurred primarily because of the differences in the cash flow streams for the mortgages and the debentures.c. What will happen to the market value of the equityThe market value of the assets has decreased from $480 to $, or $. The market value of the liabilities has decreased from $430 to $, or $. Therefore the market value of the equity will decrease by $ - $ = $, or percent.d. If interest rates increased by 2 percent, would the bank be solvent The value of the assets would decrease to $, and the value of the liabilities would decrease to $. Therefore the value of the equity would be $. Although the bank remains solvent, nearly 65 percent of the equity has eroded because of the increase in interest rates.20. Given that bank balance sheets typically are accounted in book valueterms, why should the regulators or anyone else be concerned about howinterest rates affect the market values of assets and liabilitiesThe solvency of the balance sheet is an important variable to creditors of the bank. If the capital position of the bank decreases to near zero, creditors may not be willing to provide funding for the bank, and the bank may need assistance from the regulators, or may even fail. Thus any change in the market value of assets or liabilities that is caused by changes in the level of interest rate changes is of concern to regulators.21. If a bank manager is certain that interest rates were going to increasewithin the next six months, how should the bank manager adjust thebank’s maturity gap to take advantage of this antici pated increase What if the manager believed rates would fall Would your suggestedadjustments be difficult or easy to achieveWhen rates rise, the value of the longer-lived assets will fall by more the shorter-lived liabilities. If the maturity gap (or duration gap) is positive, the bank manager will want to shorten the maturity gap. If the repricing gap is negative, the manager will want to move it towards zero or positive. If rates are expected to decrease, the manager should reverse these strategies. Changing the maturity, duration, or funding gaps on the balance sheet often involves changing the mix of assets and liabilities. Attempts to make these changes may involve changes in financial strategy for the bank which may notbe easy to accomplish. Later in the text, methods of achieving the same results using derivatives will be explored.22. Consumer Bank has $20 million in cash and a $180 million loan portfolio.The assets are funded with demand deposits of $18 million, a $162 million CD and $20 million in equity. The loan portfolio has a maturity of 2years, earns interest at the annual rate of 7 percent, and is amortized monthly. The bank pays 7 percent annual interest on the CD, but theinterest will not be paid until the CD matures at the end of 2 years.a. What is the maturity gap for Consumer Bank= [0*$20 + 2*$180]/$200 = yearsMA= [0*$18 + 2*$162]/$180 = yearsMLMGAP = – = 0 years.b. Is Consumer Bank immunized or protected against changes in interestrates Why or why notIt is tempting to conclude that the bank is immunized because thematurity gap is zero. However, the cash flow stream for the loan and the cash flow stream for the CD are different because the loan amortizesmonthly and the CD pays annual interest on the CD. Thus any change in interest rates will affect the earning power of the loan more than the interest cost of the CD.c. Does Consumer Bank face interest rate risk That is, if marketinterest rates increase or decrease 1 percent, what happens to thevalue of the equityThe bank does face interest rate risk. If market rates increase 1percent, the value of the cash and demand deposits does not change.However, the value of the loan will decrease to $, and the value of the CD will fall to $. Thus the value of the equity will be ($ + $20 - $18 - $ = $. In this case the increase in interest rates causes the marketvalue of equity to increase because of the reinvestment opportunities on the loan payments.If market rates decrease 1 percent, the value of the loan increases to $, and the value of the CD increases to $. Thus the value of the equitydecreases to $.d. How can a decrease in interest rates create interest rate riskThe amortized loan payments would be reinvested at lower rates. Thuseven though interest rates have decreased, the different cash flowpatterns of the loan and the CD have caused interest rate risk.23. FI International holds seven-year Acme International bonds and two-yearBeta Corporation bonds. The Acme bonds are yielding 12 percent and the Beta bonds are yielding 14 percent under current market conditions.a. What is the weighted-average maturity of FI’s bond portfolio if 40percent is in Acme bonds and 60 percent is in Beta bondsAverage maturity = x 7 years + x 2 years = 4 yearsb. What proportion of Acme and Beta bonds should be held to have aweighted-average yield of percentLet X* + (1 - X)* = . Solving for X, we get 25 percent. In order to get an average yield of percent, we need to hold 25 percent of Acme and 75 percent of Beta.c. What will be the weighted-average maturity of the bond portfolio ifthe weighted-average yield is realizedThe average maturity of the portfolio will decrease to x 7 + x 2 = years.24. An insurance company has invested in the following fixed-incomesecurities: (a) $10,000,000 of 5-year Treasury notes paying 5 percentinterest and selling at par value, (b) $5,800,000 of 10-year bonds paying7 percent interest with a par value of $6,000,000, and (c) $6,200,000 of20-year subordinated debentures paying 9 percent interest with a parvalue of $6,000,000.a. What is the weighted-average maturity of this portfolio of assets= [5*$10 + 10*$ + 20*$]/$22 = 232/22 = yearsMAb. If interest rates change so that the yields on all of the securitiesdecrease 1 percent, how does the weighted-average maturity of theportfolio changeTo determine the weighted-average maturity of the portfolio for a rate decrease of 1 percent, the new value of each security must be determined. This calculation will require knowing the YTM of each security before the rate change.T-notes are selling at par, so the YTM = 5 percent. Therefore, the new value will bePV = $500,000*PVIFAn=5,i=4% + $10,000,000*PVIFn=5,i=4%= $10,445,182.10-year bonds: Par = $6,000,000, PV = $5,800,000, Cpn = 7 percent YTM= %. The new PV = $420,000*PVIFAn=10,i=% + $6,000,000*PVIFn=10,i=%= $6,222,290.Debentures: Par = $6,000,000, PV = $6,200,000, Cpn = 9 percentpercent. The new PV = $540,000*PVIFAn=20,i=% + $6,000,000*PVIFn=20,i==$6,820,418.The total value of the assets after the change in rates will be$23,487,890, and the weighted-average maturity will be [5*10,445,182 +10*6,222,290 + 20*6,820,418]/23,487,890 = 250,857,170/23,487,890 = years.c. Explain the changes in the maturity values if the yields increase by 1 percent.。

金融机构管理课后答案

金融机构管理课后答案

金融机构管理课后答案金融机构管理课后答案【篇一:金融机构管理习题答案020】txt>capital adequacychapter outlineintroductioncapital and insolvency riskcapitalthe market value of capitalthe book value of capitalthe discrepancy between the market and book values of equityarguments against market value accountingcapital adequacy in the commercial banking and thrift industryactual capital rulesthe capital-assets ratio (or leverage ratio)risk-based capital ratioscalculating risk-based capital ratioscapital requirements for other fissecurities firmslife insuranceproperty-casualty insurancesummaryappendix 20a: internal ratings based approach to measuring credit risk-adjusted assetssolutions for end-of-chapter questions and problems: chapter twenty1. identify and briefly discuss the importance of the fivefunctions of an fi’s capital?capital serves as a primary cushion against operating losses and unexpected losses in the value of assets (such as the failure of a loan). fis need to hold enough capital to provide confidence to uninsured creditors that they can withstand reasonable shocks to the value of their assets. in addition, the fdic, which guarantees deposits, is concerned that sufficient capital is held so that their funds are protected, because they are responsible for paying insured depositors in the event of a failure. this protection of the fdic funds includes the protectionof the fi owners against increases in insurance premiums. finally, capital also serves as a source of financing to purchase and invest in assets.financial institution?regulators are concerned with the levels of capital held by an fi because of its special role in society. a failure of an fi can have severe repercussions to the local or national economy unlike non-financial institutions. such externalities impose a burden on regulators to ensure that these failures do not impose major negative externalities on the economy. higher capital levels will reduce the probability of such failures.3. what are the differences between the economic definitionof capital and the book valuedefinition of capital?the book value definition of capital is the value of assets minus liabilities as found on the balance sheet. this amount often is referred to as accounting net worth. the economic definition of capital is the difference between the market value of assets and the market value of liabilities.a. how does economic value accounting recognize theadverse effects of credit andinterest rate risk?the loss in value caused by credit risk and interest rate risk is borne first by the equityholders, and then by the liability holders. in market value accounting, the adjustments to equity value are made simultaneously as the losses due to these risk elements occur. thus economic insolvency may be revealed before accounting value insolvency occurs.b. how does book value accounting recognize the adverse effects of credit and interestrate risk?because book value accounting recognizes the value of assets and liabilities at the timethey were placed on the books or incurred by the firm, losses are not recognized until the assets are sold or regulatory requirements force the firm to make balance sheet accounting adjustments. in the case of credit risk, these adjustments usually occur after all attempts tocollect or restructure the loans have occurred. in the case of interest rate risk, the change in interest rates will not affect the recognized accounting value of the assets or the liabilities.4. a financial intermediary has the following balance sheet (in millions) with all assets and liabilities in market values:6 percent semiannual 4-year 5 percent 2-year subordinated debt treasury notes (par value $12) $10(par value $25) $207 percent annual 3-yearaa-rated bonds (par=$15) $159 percent annual 5-yearbbb rated bonds (par=$15) equity capital total assets totalliabilities equitya. under fasb statement no. 115, what would be the effect on equity capital (net worth)if interest rates increase by 30 basis points? the t-notes are held for trading purposes, the rest are all classified as held to maturity.only assets that are classified for trading purposes or available-for-sale are to be reported atmarket values. those classified as held-to-maturity are reported at book values. thechange in value of the t-notes for a 30 basis points change in interest rates is:$10 = pvan=8,k=?($0.36) + pvn=8,k=?($12) ? k = 5.6465 x 2 = 11.293%if k =11.293% + 0.30% =11.593/2 = 5.7965%, the value of the notes will decline to: pvan=8,k=5.7965($0.36) +pvn=3,k=5.7965($12) = $9.8992. and the change in value is $9.8992 -$10 = -0.1008 x $1,000,000 = $100,770.396% semiannual 4-year 5% 2-year subordinatedt-notes (par value $12) $9.8992 debt (par value $25) $20.0000 7% annual 3-yearaa-rated bonds (par=$15) $15.0000 equity capital $20.0000 9% annual 5-yearbbb rated bonds (par=$15) adj. to equity total $39.8992 $39.8992b. under fasb statement no. 115, how are the changes in the market value of assetsadjusted in the income statements and balance sheets of fis?under fasb statement no. 115 assets held till maturity will bekept in book value. assetsavailable for sale and for trading purposes will always be reported in market values except by securities firms, which will have all assets and liabilities reported in market values. also, all uealized and realized income gains and losses will be reflected in both incomestatements and balance sheets for trading purposes. adjustments to assets available for sale will be reflected only through equity adjustments.5. why is the market value of equity a better measure of a banks ability to absorb losses thanbook value of equity?the market value of equity is more relevant than book value because in the event of abankruptcy, the liquidation (market) values will determine the fis ability to pay the various claimants.6. state bank has the following year-end balance sheet (in millions):cash $10 deposits $90loans equitytotal assetsthe loans primarily are fixed-rate, medium-term loans, while the deposits are either short-term or variable-rate. rising interest rates have caused the failure of a key industrialcompany, and as a result, 3 percent of the loans are considered to be uncollectable and thus have no economic value. one-third of these uncollectable loans will be charged off.further, the increase in interest rates has caused a 5 percent decrease in the market value of the remaining loans.a. what is the impact on the balance sheet after the necessaryadjustments are madeaccording to book value accounting? according to market value accounting?under book value accounting, the only adjustment is to charge off 1 percent of the loans.thus the loan portfolio will decrease by $0.90 and a corresponding adjustment will occur in the equity account.the new book value of equity will be $9.10. we assume no tax affects since the tax rate is not given.under market value accounting, the 3 percent decrease inloan value will be recognized, aswill the 5 percent decrease in market value of the remaining loans. thus equity willdecrease by 0.03 x $90 + 0.05 x $90(1 – 0.03) = $7.065. the new market value of equity will be $2.935.b. what is the new market to book value ratio if state bank has $1 million sharesoutstanding?the new market to book value ratio is $2.935/$9.10 = 0.3225.7. what are the arguments for and against the use of market value accounting for fis?market values produce a more accurate picture of the bank’s current financial position for both stockholders and regulators. stockholders can more easily see the effects of changes in interest rates on the bank’s equity, and they can evalua te more clearly the liquidation value of adistressed bank. among the arguments against market value accounting are that market values sometimes are difficult to estimate, particularly for small banks with non-traded assets. this argument is countered by the increasing use of assetsecuritization as a means to determine value of even thinly traded assets. in addition, some argue that market value accounting can produce higher volatility in the earnings of banks. a significant issue in this regard is that regulators may close a bank too quickly under the prompt corrective action requirements of fdicia.8. how is the leverage ratio for an fi defined?the leverage ratio is the ratio of book value of core capital to the book value of total assets, where core capital is book value of equity plus qualifying cumulative perpetual preferred stock plus minority interests in equity accounts of consolidated subsidiaries.9. what is the significance of prompt corrective action as specified by the fdicia legislation?the prompt corrective action provision requires regulators to appoint a receiver for the bank when the leverage ratio falls below 2 percent. thus even though the bank is technically not insolvent in terms of book value of equity, the institution can be placed into receivorship.10. identify and discuss the weaknesses of the leverage ratio as a measure of capital adequacy.first, closing a bank when the leverage ratio falls below 2 percent does not guarantee that the depositors are adequately protected. in many cases of financial distress, the actual market value of equity is significantly negative by the time the leverage ratio reaches 2 percent. second, using total assets as the denominator does not consider the different credit and interest rate risks of the individual assets. third, the ratio does not capture the contingent risk of the off-balance sheet activities of the bank.11. what is the basel agreement?the basel agreement identifies the risk-based capital ratios agreed upon by the member countries of the bank forinternational settlements. the ratios are to be implemented for all commercial banks under their jurisdiction. further, most countries in the world now have accepted the guidelines of this agreement for measuring capital adequacy.12. what is the major feature in the estimation of credit risk under the basel i capitalrequirements?the major feature of the basel agreement is that the capital of banks must be measured as an average of credit-risk-adjusted total assets both on and off the balance sheet.13. what is the total risk-based capital ratio?the total risk-based capital ratio divides total capital by the total of risk-adjusted assets. this ratio must be at least 8 percent for a bank to be considered adequately capitalized. further, at least 4 percent of the risk-based assets must be supported by core capital.【篇二:银行管理章节练习题(附答案)】以下关于金融工具的分类,错误的是()。

罗斯公司理财Chap003全英文题库及答案

罗斯公司理财Chap003全英文题库及答案

Chapter 03 Financial Statements Analysis and Long-Term Planning Answer KeyMultiple Choice Questions1. One key reason a long-term financial plan is developed is because:A. the plan determines your financial policy.B. the plan determines your investment policy.C. there are direct connections between achievable corporate growth and the financial policy.D. there is unlimited growth possible in a well-developed financial plan.E. None of the above.Difficulty level: EasyTopic: LONG-TERM PLANNINGType: DEFINITIONS2. Projected future financial statements are called:A. plug statements.B. pro forma statements.C. reconciled statements.D. aggregated statements.E. none of the above.Difficulty level: EasyTopic: PRO FORMA STATEMENTSType: DEFINITIONS3. The percentage of sales method:A. requires that all accounts grow at the same rate.B. separates accounts that vary with sales and those that do not vary with sales.C. allows the analyst to calculate how much financing the firm will need to support the predicted sales level.D. Both A and B.E. Both B and C.Difficulty level: MediumTopic: PERCENTAGE OF SALESType: DEFINITIONS4. A _____ standardizes items on the income statement and balance sheet as a percentage of total sales and total assets, respectively.A. tax reconciliation statementB. statement of standardizationC. statement of cash flowsD. common-base year statementE. common-size statementDifficulty level: EasyTopic: COMMON-SIZE STATEMENTSType: DEFINITIONS5. Relationships determined from a firm's financial information and used for comparison purposes are known as:A. financial ratios.B. comparison statements.C. dimensional analysis.D. scenario analysis.E. solvency analysis.Difficulty level: EasyTopic: FINANCIAL RATIOSType: DEFINITIONS6. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: SHORT-TERM SOLVENCY RATIOSType: DEFINITIONS7. The current ratio is measured as:A. current assets minus current liabilities.B. current assets divided by current liabilities.C. current liabilities minus inventory, divided by current assets.D. cash on hand divided by current liabilities.E. current liabilities divided by current assets.Difficulty level: EasyTopic: CURRENT RATIOType: DEFINITIONS8. The quick ratio is measured as:A. current assets divided by current liabilities.B. cash on hand plus current liabilities, divided by current assets.C. current liabilities divided by current assets, plus inventory.D. current assets minus inventory, divided by current liabilities.E. current assets minus inventory minus current liabilities.Difficulty level: EasyTopic: QUICK RATIOType: DEFINITIONS9. The cash ratio is measured as:A. current assets divided by current liabilities.B. current assets minus cash on hand, divided by current liabilities.C. current liabilities plus current assets, divided by cash on hand.D. cash on hand plus inventory, divided by current liabilities.E. cash on hand divided by current liabilities.Difficulty level: MediumTopic: CASH RATIOType: DEFINITIONS10. Ratios that measure a firm's financial leverage are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS11. The financial ratio measured as total assets minus total equity, divided by total assets, is the:A. total debt ratio.B. equity multiplier.C. debt-equity ratio.D. current ratio.E. times interest earned ratio.Difficulty level: EasyTopic: TOTAL DEBT RATIOType: DEFINITIONS12. The debt-equity ratio is measured as total:A. equity minus total debt.B. equity divided by total debt.C. debt divided by total equity.D. debt plus total equity.E. debt minus total assets, divided by total equity.Difficulty level: EasyTopic: DEBT-EQUITY RATIOType: DEFINITIONS13. The equity multiplier ratio is measured as total:A. equity divided by total assets.B. equity plus total debt.C. assets minus total equity, divided by total assets.D. assets plus total equity, divided by total debt.E. assets divided by total equity.Difficulty level: MediumTopic: EQUITY MULTIPLIERType: DEFINITIONS14. The financial ratio measured as earnings before interest and taxes, divided by interest expense is the:A. cash coverage ratio.B. debt-equity ratio.C. times interest earned ratio.D. gross margin.E. total debt ratio.Difficulty level: MediumTopic: TIMES INTEREST EARNED RATIOType: DEFINITIONS15. The financial ratio measured as earnings before interest and taxes, plus depreciation, divided by interest expense, is the:A. cash coverage ratio.B. debt-equity ratio.C. times interest earned ratio.D. gross margin.E. total debt ratio.Difficulty level: MediumTopic: CASH COVERAGE RATIOType: DEFINITIONS16. Ratios that measure how efficiently a firm uses its assets to generate sales are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS17. The inventory turnover ratio is measured as:A. total sales minus inventory.B. inventory times total sales.C. cost of goods sold divided by inventory.D. inventory times cost of goods sold.E. inventory plus cost of goods sold.Difficulty level: MediumTopic: INVENTORY TURNOVERType: DEFINITIONS18. The financial ratio days' sales in inventory is measured as:A. inventory turnover plus 365 days.B. inventory times 365 days.C. inventory plus cost of goods sold, divided by 365 days.D. 365 days divided by the inventory.E. 365 days divided by the inventory turnover.Difficulty level: MediumTopic: DAYS' SALES IN INVENTORYType: DEFINITIONS19. The receivables turnover ratio is measured as:A. sales plus accounts receivable.B. sales divided by accounts receivable.C. sales minus accounts receivable, divided by sales.D. accounts receivable times sales.E. accounts receivable divided by sales.Difficulty level: MediumTopic: RECEIVABLES TURNOVERType: DEFINITIONS20. The financial ratio days' sales in receivables is measured as:A. receivables turnover plus 365 days.B. accounts receivable times 365 days.C. accounts receivable plus sales, divided by 365 days.D. 365 days divided by the receivables turnover.E. 365 days divided by the accounts receivable.Difficulty level: MediumTopic: DAYS' SALES IN RECEIVABLESType: DEFINITIONS21. The total asset turnover ratio is measured as:A. sales minus total assets.B. sales divided by total assets.C. sales times total assets.D. total assets divided by sales.E. total assets plus sales.Difficulty level: EasyTopic: TOTAL ASSET TURNOVERType: DEFINITIONS22. Ratios that measure how efficiently a firm's management uses its assets and equity to generate bottom line net income are known as _____ ratios.A. asset managementB. long-term solvencyC. short-term solvencyD. profitabilityE. market valueDifficulty level: EasyTopic: PROFITABILITY RATIOSType: DEFINITIONS23. The financial ratio measured as net income divided by sales is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: PROFIT MARGINType: DEFINITIONS24. The financial ratio measured as net income divided by total assets is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: RETURN ON ASSETSType: DEFINITIONS25. The financial ratio measured as net income divided by total equity is known as the firm's:A. profit margin.B. return on assets.C. return on equity.D. asset turnover.E. earnings before interest and taxes.Difficulty level: EasyTopic: RETURN ON EQUITYType: DEFINITIONS26. The financial ratio measured as the price per share of stock divided by earnings per share is known as the:A. return on assets.B. return on equity.C. debt-equity ratio.D. price-earnings ratio.E. Du Pont identity.Difficulty level: EasyTopic: PRICE-EARNINGS RATIOType: DEFINITIONS27. The market-to-book ratio is measured as:A. total equity divided by total assets.B. net income times market price per share of stock.C. net income divided by market price per share of stock.D. market price per share of stock divided by earnings per share.E. market value of equity per share divided by book value of equity per share.Difficulty level: MediumTopic: MARKET-TO-BOOK RATIOType: DEFINITIONS28. The _____ breaks down return on equity into three component parts.A. Du Pont identityB. return on assetsC. statement of cash flowsD. asset turnover ratioE. equity multiplierDifficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS29. The External Funds Needed (EFN) equation does not measure the:A. additional asset requirements given a change in sales.B. additional total liabilities raised given the change in sales.C. rate of return to shareholders given the change in sales.D. net income expected to be earned given the change in sales.E. None of the above.Difficulty level: MediumTopic: EXTERNAL FUNDS NEEDEDType: DEFINITIONS30. To calculate sustainable growth rate without using return on equity, the analyst needs the:A. profit margin.B. payout ratio.C. debt-to-equity ratio.D. total asset turnover.E. All of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS31. Growth can be reconciled with the goal of maximizing firm value:A. because greater growth always adds to value.B. because growth must be an outcome of decisions that maximize NPV.C. because growth and wealth maximization are the same.D. because growth of any type cannot decrease value.E. None of the above.Difficulty level: MediumTopic: GROWTHType: DEFINITIONS32. Sustainable growth can be determined by the:A. profit margin, total asset turnover and the price to earnings ratio.B. profit margin, the payout ratio, the debt-to-equity ratio, and the asset requirement or asset turnover ratio.C. Total growth less capital gains growth.D. Either A or B.E. None of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTHType: DEFINITIONS33. Which of the following will increase sustainable growth?A. Buy back existing stockB. Decrease debtC. Increase profit marginD. Increase asset requirement or asset turnover ratioE. Increase dividend payout ratioDifficulty level: MediumTopic: SUSTAINABLE GROWTHType: DEFINITIONS34. The main objective of long-term financial planning models is to:A. determine the asset requirements given the investment activities of the firm.B. plan for contingencies or uncertain events.C. determine the external financing needs.D. All of the above.E. None of the above.Difficulty level: MediumTopic: LONG TERM PLANNINGType: DEFINITIONS35. On a common-size balance sheet, all _____ accounts are shown as a percentage of _____.A. income; total assetsB. liability; net incomeC. asset; salesD. liability; total assetsE. equity; salesDifficulty level: MediumTopic: COMMON-SIZE BALANCE SHEETType: DEFINITIONS36. Which one of the following statements is correct concerning ratio analysis?A. A single ratio is often computed differently by different individuals.B. Ratios do not address the problem of size differences among firms.C. Only a very limited number of ratios can be used for analytical purposes.D. Each ratio has a specific formula that is used consistently by all analysts.E. Ratios can not be used for comparison purposes over periods of time.Difficulty level: MediumTopic: RATIO ANALYSISType: DEFINITIONS37. Which of the following are liquidity ratios?I. cash coverage ratioII. current ratioIII. quick ratioIV. inventory turnoverA. II and III onlyB. I and II onlyC. II, III, and IV onlyD. I, III, and IV onlyE. I, II, III, and IVDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS38. An increase in which one of the following accounts increases a firm's current ratio without affecting its quick ratio?A. accounts payableB. cashC. inventoryD. accounts receivableE. fixed assetsDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS39. A supplier, who requires payment within ten days, is most concerned with which one of the following ratios when granting credit?A. currentB. cashC. debt-equityD. quickE. total debtDifficulty level: MediumTopic: LIQUIDITY RATIOSType: DEFINITIONS40. A firm has a total debt ratio of .47. This means that that firm has 47 cents in debt for every:A. $1 in equity.B. $1 in total sales.C. $1 in current assets.D. $.53 in equity.E. $.53 in total assets.Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS41. The long-term debt ratio is probably of most interest to a firm's:A. credit customers.B. employees.C. suppliers.D. mortgage holder.E. shareholders.Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS42. A banker considering loaning a firm money for ten years would most likely prefer the firm have a debt ratio of _____ and a times interest earned ratio of _____.A. .75; .75B. .50; 1.00C. .45; 1.75D. .40; 2.50E. .35; 3.00Difficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS43. From a cash flow position, which one of the following ratios best measures a firm's ability to pay the interest on its debts?A. times interest earned ratioB. cash coverage ratioC. cash ratioD. quick ratioE. Interval measureDifficulty level: MediumTopic: LONG-TERM SOLVENCY RATIOSType: DEFINITIONS44. The higher the inventory turnover measure, the:A. faster a firm sells its inventory.B. faster a firm collects payment on its sales.C. longer it takes a firm to sell its inventory.D. greater the amount of inventory held by a firm.E. lesser the amount of inventory held by a firm.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS45. Which one of the following statements is correct if a firm has a receivables turnover measure of 10?A. It takes a firm 10 days to collect payment from its customers.B. It takes a firm 36.5 days to sell its inventory and collect the payment from the sale.C. It takes a firm 36.5 days to pay its creditors.D. The firm has an average collection period of 36.5 days.E. The firm has ten times more in accounts receivable than it does in cash.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS46. A total asset turnover measure of 1.03 means that a firm has $1.03 in:A. total assets for every $1 in cash.B. total assets for every $1 in total debt.C. total assets for every $1 in equity.D. sales for every $1 in total assets.E. long-term assets for every $1 in short-term assets.Difficulty level: MediumTopic: ASSET MANAGEMENT RATIOSType: DEFINITIONS47. Puffy's Pastries generates five cents of net income for every $1 in sales. Thus, Puffy's has a _____ of 5%.A. return on assetsB. return on equityC. profit marginD. Du Pont measureE. total asset turnoverDifficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS48. If a firm produces a 10% return on assets and also a 10% return on equity, then the firm:A. has no debt of any kind.B. is using its assets as efficiently as possible.C. has no net working capital.D. also has a current ratio of 10.E. has an equity multiplier of 2.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS49. If shareholders want to know how much profit a firm is making on their entire investment in the firm, the shareholders should look at the:A. profit margin.B. return on assets.C. return on equity.D. equity multiplier.E. earnings per share.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS50. BGL Enterprises increases its operating efficiency such that costs decrease while sales remain constant. As a result, given all else constant, the:A. return on equity will increase.B. return on assets will decrease.C. profit margin will decline.D. equity multiplier will decrease.E. price-earnings ratio will increase.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS51. The only difference between Joe's and Moe's is that Joe's has old, fully depreciated equipment. Moe's just purchased all new equipment which will be depreciated over eight years. Assuming all else equal:A. Joe's will have a lower profit margin.B. Joe's will have a lower return on equity.C. Moe's will have a higher net income.D. Moe's will have a lower profit margin.E. Moe's will have a higher return on assets.Difficulty level: MediumTopic: PROFITABILITY RATIOSType: DEFINITIONS52. Last year, Alfred's Automotive had a price-earnings ratio of 15. This year, the price earnings ratio is 18. Based on this information, it can be stated with certainty that:A. the price per share increased.B. the earnings per share decreased.C. investors are paying a higher price for each share of stock purchased.D. investors are receiving a higher rate of return this year.E. either the price per share, the earnings per share, or both changed.Difficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS53. Turner's Inc. has a price-earnings ratio of 16. Alfred's Co. has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Alfred's:A. has a higher market price than one share of stock in Turner's.B. has a higher market price per dollar of earnings than does one share of Turner's.C. sells at a lower price per share than one share of Turner's.D. represents a larger percentage of firm ownership than does one share of Turner's stock.E. earns a greater profit per share than does one share of Turner's stock.Difficulty level: MediumTopic: MARKET VALUE RATIOType: DEFINITIONS54. Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?I. slow industry outlookII. high prospect of firm growthIII. very low current earningsIV. investors with a low opinion of the firmA. I and II onlyB. II and III onlyC. II and IV onlyD. I and III onlyE. III and IV onlyDifficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS55. Vinnie's Motors has a market-to-book ratio of 3. The book value per share is $4.00. Holding market-to-book constant, a $1 increase in the book value per share will:A. cause the accountants to increase the equity of the firm by an additional $2.B. increase the market price per share by $1.C. increase the market price per share by $12.D. tend to cause the market price per share to rise.E. only affect book values but not market values.Difficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS56. Which one of the following sets of ratios applies most directly to shareholders?A. return on assets and profit marginB. quick ratio and times interest earnedC. price-earnings ratio and debt-equity ratioD. market-to-book ratio and price-earnings ratioE. cash coverage ratio and times equity multiplierDifficulty level: MediumTopic: MARKET VALUE RATIOSType: DEFINITIONS57. The three parts of the Du Pont identity can be generally described as:I. operating efficiency, asset use efficiency and firm profitability.II. financial leverage, operating efficiency and asset use efficiency.III. the equity multiplier, the profit margin and the total asset turnover.IV. the debt-equity ratio, the capital intensity ratio and the profit margin.A. I and II onlyB. II and III onlyC. I and IV onlyD. I and III onlyE. III and IV onlyDifficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS58. If a firm decreases its operating costs, all else constant, then:A. the profit margin increases while the equity multiplier decreases.B. the return on assets increases while the return on equity decreases.C. the total asset turnover rate decreases while the profit margin increases.D. both the profit margin and the equity multiplier increase.E. both the return on assets and the return on equity increase.Difficulty level: MediumTopic: DU PONT IDENTITYType: DEFINITIONS59. Which one of the following statements is correct?A. Book values should always be given precedence over market values.B. Financial statements are frequently the basis used for performance evaluations.C. Historical information has no value when predicting the future.D. Potential lenders place little value on financial statement information.E. Reviewing financial information over time has very limited value.Difficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS60. It is easier to evaluate a firm using its financial statements when the firm:A. is a conglomerate.B. is global in nature.C. uses the same accounting procedures as other firms in its industry.D. has a different fiscal year than other firms in its industry.E. tends to have one-time events such as asset sales and property acquisitions.Difficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS61. Which two of the following represent the most effective methods of directly evaluating the financial performance of a firm?I. comparing the current financial ratios to those of the same firm from prior time periodsII. comparing a firm's financial ratios to those of other firms in the firm's peer group who have similar operationsIII. comparing the financial statements of the firm to the financial statements of similar firms operating in other countriesIV. comparing the financial ratios of the firm to the average ratios of all firms located in the same geographic areaA. I and II onlyB. II and III onlyC. III and IV onlyD. I and IV onlyE. I and III onlyDifficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS62. In the financial planning model, external funds needed (EFN) is equal to changes inA. assets - (liabilities - equity).B. assets - (liabilities + equity).C. (assets + liabilities - equity).D. (assets + equity - liabilities).E. assets - equity.Difficulty level: MediumTopic: EXTERNAL FUNDS NEEDEDType: DEFINITIONS63. Which of the following represent problems encountered when comparing the financial statements of one firm with those of another firm?I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business.II. The operations of the two firms may vary geographically.III. The firms may use differing accounting methods for inventory purposes.IV. The two firms may be seasonal in nature and have different fiscal year ends.A. I and II onlyB. II and III onlyC. I, III, and IV onlyD. I, II, and III onlyE. I, II, III, and IVDifficulty level: MediumTopic: EVALUATING FINANCIAL STATEMENTSType: DEFINITIONS64. A firm's sustainable growth rate in sales directly depends on its:A. debt to equity ratio.B. profit margin.C. dividend policy.D. asset efficiency.E. All of the above.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS65. The sustainable growth rate will be equivalent to the internal growth rate when:A. a firm has no debt.B. the growth rate is positive.C. the plowback ratio is positive but less than 1.D. a firm has a debt-equity ratio exactly equal to 1.E. net income is greater than zero.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS66. The sustainable growth rate:A. assumes there is no external financing of any kind.B. is normally higher than the internal growth rate.C. assumes the debt-equity ratio is variable.D. is based on receiving additional external debt and equity financing.E. assumes that 100% of all income is retained by the firm.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS67. If a firm bases its growth projection on the rate of sustainable growth, and shows positive net income, then the:A. fixed assets will have to increase at the same rate, regardless of the current capacity level.B. number of common shares outstanding will increase at the same rate of growth.C. debt-equity ratio will have to increase.D. debt-equity ratio will remain constant while retained earnings increase.E. fixed assets, debt-equity ratio, and number of common shares outstanding will all increase.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS68. Marcie's Mercantile wants to maintain its current dividend policy, which is a payout ratio of 40%. The firm does not want to increase its equity financing but is willing to maintain its current debt-equity ratio. Given these requirements, the maximum rate at which Marcie's can grow is equal to:A. 40% of the internal rate of growth.B. 60% of the internal rate of growth.C. the internal rate of growth.D. the sustainable rate of growth.E. 60% of the sustainable rate of growth.Difficulty level: MediumTopic: SUSTAINABLE GROWTH RATEType: DEFINITIONS69. One of the primary weaknesses of many financial planning models is that they:A. rely too much on financial relationships and too little on accounting relationships.B. are iterative in nature.C. ignore the goals and objectives of senior management.D. are based solely on best case assumptions.E. ignore the size, risk, and timing of cash flows.Difficulty level: MediumTopic: FINANCIAL PLANNING MODELSType: DEFINITIONS70. Financial planning, when properly executed:A. ignores the normal restraints encountered by a firm.B. ensures that the primary goals of senior management are fully achieved.C. reduces the necessity of daily management oversight of the business operations.D. helps ensure that proper financing is in place to support the desired level of growth.E. eliminates the need to plan more than one year in advance.Difficulty level: MediumTopic: FINANCIAL PLANNINGType: DEFINITIONS71. When examining the EBITDA ratio, lower numbers are:A. considered good.B. considered mediocre.C. considered poor.D. indifferent to higher numbers.E. it is impossible to garner information from this ratio.Difficulty level: MediumTopic: EBITDA RATIOType: DEFINITIONS。

Chap005金融机构管理课后题答案

Chap005金融机构管理课后题答案

Chapter FiveThe Financial Services Industry: Mutual FundsChapter OutlineIntroductionSize, Structure, and Composition of the Industry∙Historical Trends∙Different Types of Mutual Funds∙Mutual Fund Objectives∙Investor Returns from Mutual Fund Ownership∙Mutual Fund CostsBalance Sheet and Recent Trends∙Money Market Funds∙Long-Term FundsRegulationGlobal IssuesSummaryAppendix 5A – Hedge FundsSolutions for End-of-Chapter Questions and Problems: Chapter Five1.What is a mutual fund? In what sense is it a financial intermediary?A mutual fund represents a pool of financial resources obtained from individuals and companies, which is invested in the money and capital markets. This process represents another method for economic savers to channel funds to companies and government units that need extra funds.2.What are money market mutual funds? In what assets do these funds typically invest?What factors have caused the strong growth in this type of fund since the late 1970s? Money market mutual funds (MMMFs) invest in assets that have maturities of less than one year. These assets primarily are Treasury bills, negotiable certificates of deposit, repurchase agreements, and commercial paper. The growth in MMMFs since the late 1970s initially occurred because of rising interest rates in the money markets, while Reg Q restricted interest rates on accounts in depository institutions. Many investors moved their short-term savings from the depository institutions to the MMMFs as the spread in the earnings rate reached double digits.A result of this activity was to introduce many investors to the capital markets for the first time.3.What are long-term mutual funds? In what assets do these funds usually invest? Whatfactors caused the strong growth in this type of fund during the 1990s?Long-term mutual funds primarily invest in assets that have maturities of more than one year. The most common assets include long-term fixed-income bonds, common stock, and preferred stocks. Some money market assets are included for liquidity purposes. The growth in these funds in the 1990s reflected the dramatic increase in equity returns, the reduction in transaction costs, and the recognition of diversification benefits achievable through mutual funds.ing the data in Table 5-3, discuss the growth and ownership holding over the last twentyyears of long-term funds versus short-term funds.The dollar investment in the money market mutual funds (MMMF) exceeded the investment in the long-term funds (LTF) in 1980. However, by 2001, the LTFs had more than a two to one advantage on the MMMFs, $4,135 billion to $2,241 billion. The LTF grew at an annualized rate of 22.2 percent, and the MMMF grew at an annualized rate of 17.5 percent. In each type of fund, the largest investment source was the household sector, with growth of 21.8 percent annual rate for the LTF and 14.7 percent for the MMMF.5. Why did the proportion of equities in long-term funds increase from 38.3 percent in 1990to over 70 percent by 2000, and then decrease to 62 percent in 2002? How might aninvestor’s preference for a mutual funds objectives change over time?The primary reason for the increased proportion of funds in equities during the 1990s was the strength of the equity market that was driven by the underlying strength of the economy during this period. Contrarily, as the economy softened in the early 2000s, investors retreated somewhat from equities as preferred investments.The pattern of investor preferences may change over the life of an investor for reasons other than changes in economic activity. Aggressive high growth funds may be preferred during the early career years of the 20s, 30s, and into the 40s. As investors mature and retirement becomes a closer reality, investors may switch to a balance of growth and income funds. Finally, at retirement investors may try to protect their investment savings by switching to high yield stock and bond funds.6. How does the risk of short-term funds differ from the risk of long-term funds?The principal type of risk for short-term funds is interest rate risk, because of the predominance of fixed-income securities. Because of the shortness of maturity of the assets, which often is less than 60 days, this risk is mitigated to a large extent. Short-term funds have virtually no liquidity or default risk because of the types of assets held. Long-term equity funds typically are well diversified, and the risk is more systematic or market based. Bond funds have extensive interest rate risk because of their long-term, fixed-rate nature. Sector, or industry-specific, funds have systematic (market) and unsystematic risk, regardless of whether they are equity or bond funds.7. What are the economic reasons for the existence of mutual funds; that is, what benefits domutual funds provide for investors? Why do individuals rather than corporations hold most mutual funds?One major economic reason for the existence of mutual funds is the ability to achieve diversification through risk pooling for small investors. By pooling investments from a large number of small investors, fund managers are able to hold well-diversified portfolios of assets. In addition, managers can obtain lower transaction costs because of the volume of transactions, both in dollars and numbers, and they benefit from research, information, and monitoring activities at reduced costs.Many small investors are able to gain the benefits of the money and capital markets by using mutual funds. Once an account is opened in a fund, a small amount of money can be invested on a periodic basis. In many cases the amount of the investment would be insufficient for direct access to the money and capital markets. On the other hand, corporations are more likely to be able to diversify by holding a large bundle of individual securities and assets, and money and capital markets are easily accessible by direct investment. Further, an argument can be made that the goal of corporations should be to maximize shareholder wealth, not to be diversified. 8. What are the principal demographics of household owners who own mutual funds? Whatare the primary reasons why household owners invest in mutual funds?Investors tend to be in their primary income generating years, are married with college degrees, have other retirement plans, and prefer equity funds as opposed to bond, hybrid, or money market funds. Most individuals are using the funds as vehicles for retirement savings, while many households are using the funds as savings vehicles for children’s education.9. What change in regulatory guidelines occurred in 1998 that had the primary purpose ofgiving investors a better understanding of the risks and objectives of a fund?The SEC recommended that the original lengthy prospectuses, which described the objectives and investments of a fund, should be replaced by a two-page profile written in plain English. The profile should be designed to increase the ability of investors to understand the risks and objectives of the fund.10. What are the three possible components reflected in the return an investor receives from amutual fund?The investor receives the income and dividends paid by the companies, the capital gains from the sale of securities by the mutual fund, and the capital appreciation of the underlying assets.11. An investor purchases a mutual fund for $60. The fund pays dividends of $1.75, distributesa capital gain of $3, and charges a fee of $3 when the fund is sold one year later for $67.50.What is the net rate of return from this investment?The dollar return is $1.75 + $3 + $7.50 - $3 = $9.25. The rate of return is $9.25/$60 = 15.42%.12. How is the net asset value (NAV) of a mutual fund determined? What is meant by the termmarked-to-market?Net Asset Value (NAV) is the average market value of each ownership share of the mutual fund. The total market value of the fund is determined by summing the total value of each asset in the fund. The value of each asset can be found by multiplying the number of shares of the asset by the corresponding price of the asset. Dividing this total fund value by the number of shares in the mutual fund will give the NAV for the fund.The NAV is calculated at the end of each daily trading session, and thus reflects any adjustments in value caused by (a) changes in value of the underlying assets, (b) dividend distributions of the companies held, or (c) changes in ownership of the fund. This process of daily recalculation of the NAV is called marking-to-market.13. A mutual fund owns 400 shares of Fiat, Inc., currently trading at $7, and 400 shares ofMicrosoft, Inc., currently trading at $70. The fund has 100 shares outstanding.a.What is the net asset value (NAV) of the fund?NAV = (400 x $7 + 400 x $70)/100 = $30,800/100 = $308.00.b.If investors expect the price of Fiat shares to increase to $9 and the price of Microsoftshares to decrease to $55 by the end of the year, what is the expected NAV at the end of the year?Expected NAV = (400 x $9 + 400 x $55)/100 = $25,600/100 = $256.00, or a decline of16.88 percent.c.Assume that the expected price of the Fiat shares is realized at $9. What is themaximum price decrease that can occur to the Microsoft shares to realize an end-of-year NAV equal to the NAV estimated in (a)?(400 x $9)/100 + (400 x P M)/100 = $308.00, implies that P M = $68.00, a decrease of $2.00. 14. What is the difference between open-end and closed-end mutual funds? Which type offund tends to be more specialized in asset selection? How does a closed-end fund provide another source of return from which an investor may either gain or lose?Open-end funds allow shares to be purchased and redeemed according to investor demand. The NAV of open-ended funds is determined only by changes in the value of the assets owned. In closed-end funds, the number of shares of the fund is fixed. If investors need to redeem their shares, they sell them to another investor. Thus the demand for the fund shares can provide another source of return for the investors as the market price of the fund may exceed the NAV of the fund. Closed-end funds, such as real estate investment trusts, tend to be more specialized. 15. Open-end Fund A owns 100 shares of ATT valued at $100 each and 50 shares of Torovalued at $50 each. Closed-end Fund B owns 75 shares of ATT and 100 shares of Toro.Each fund has 100 shares of stock outstanding.a.What are the NAVs of both funds using these prices?NAV open-end = (100 x $100 + 50 x $50)/100 = $125.00.NAV closed-end = (75 x $100 + 100 x $50)/100 = $125.00.b.Assume that in one month the price of ATT stock has increased to $105 and the price ofToro stock has decreased to $45. How do these changes impact the NAV of both funds?If the funds were purchased at the NAV prices in (a) and sold at month-end, whatwould be the realized returns on the investments?NAV open-end = (100 x $105 + 50 x $45)/100 = $127.50.Percentage change in NAV = ($127.50 - $125.00)/$125.00 = 2.00%.NAV closed-end = (75 x $105 + 100 x $45)/100 = $123.75.Percentage change in NAV = ($123.75 - $125.00)/$125.00 = -1.00%.c.Assume that another 100 shares of ATT are added to Fund A. What is the effect on A’sNAV if the stock prices remain unchanged from the original prices?NAV open-end = (200 x $100 + 50 x $50)/100 = $225.00.16. What is the difference between a load fund and a no-load fund? Is the argument that loadfunds are more closely managed and therefore have higher returns supported by theevidence presented in Table 5-7?A load fund charges an up-front fee that often is called a sales charge and is used as a commission payment for sales representatives. These fees can be as high as 8.5 percent. A no-load fund does not charge a sales fee, although a small annual fee can be charged to cover certain administrative expenses. This small fee, which is called a 12b-1 fee, usually ranges between0.25 and 0.35 percent of assets. According to the data in Table 5-7, the load funds have adjusted returns that are decreased after the fee is removed. In each case the relative performance ranking of the fund decreases after the load is subtracted.17. What is a 12b-1 fee? Suppose you have a choice between a load fund with no annual 12b-1fee and a no-load fund with a maximum 12b-1 fee. How would the length of your expected investment horizon, or holding period, influence your choice between these two funds? The 12b-1 fee is allowed by the SEC to provide assistance in covering administrative expenses for no-load funds. Thus, in terms of fees and without consideration of time value issues, a 4.00 percent load would be equivalent to the 12b-1 fee for 16 years. This comparison would have to be adjusted for change in the value of the funds assets over time, since the 12b-1 fee is administered on an annual basis against the fund value at that time.18. Suppose an individual invests $10,000 in a load mutual fund for two years. The load feeentails an up-front commission charge of 4 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.85 percent. The annual fees are charged on the average net asset value invested in the fund and are recorded at the end of each year. Investments in the fund return 5percent each year paid on the last day of the year. If the investor reinvests the annualreturns paid on the investment, calculate the annual return on the mutual fund over the two year investment period.Annual Return Calculation Based on Text Example 5-4:Annualized load fee = 4% ÷ 2 years = 2.00%Annual fund operating expense = 0.85%Total annual cost = 2.85% ⇒ Annual return = 5.00% - 2.85% = 2.15% Annual Return Calculation Based on Present Value of Investment:Initial investment in the fund = $10,000Front-end load of 4.00% = $400Total investable funds = $9,600Investment value at end of year one = $9,600 x 1.05 = $10,080.00Operating expenses based on average NAV = $9,840 x .0085 = $83.64Net investable funds for year two = $9,996.36Investment value at end of year two = $9,996.36 x 1.05 = $10,496.18Operating expenses based on average NAV = $10,246.27 x .0085 = $87.09Net investment at end of year two = $10,409.09Average annual compound return:$10,409.09 = $10,000(1 + g)2 g = 2.025%19. Who are the primary regulators of the mutual fund industry? How do their regulatory goalsdiffer from those of other financial institution?The Securities and Exchange Commission (SEC) is the primary regulator of the mutual fund industry. The SEC is not concerned with the administration of sound economic monetary policy, which is part of the goal of the Federal Reserve System, but rather is primarily concerned with the protection of investors from possible abuses by managers of mutual funds.Several pieces of legislation have been enacted to clarify and assist this regulatory process. Under the Securities Act of 1933, mutual funds must file a registration statement with the SEC and abide by the rules established under the act for the distribution of prospectuses to investors. The Securities Exchange Act of 1934 establishes antifraud provisions aimed at the accurate transmission of information to prospective investors. The 1934 act also appointed the National Association of Securities Dealers to supervise the distribution of mutual fund shares. The Investment Advisors Act of 1940 regulates the activities of mutual fund advisors, and the Investment Company Act establishes rules involving fees and charges. The Insider Trading and Securities Fraud Enforcement Act of 1988 addresses issues of insider trading, and the Market Reform Act of 1990 provides for the establishment of circuit breakers to halt trading in case of severe market downturns. Finally, the National Securities Markets Improvement Act of 1996 exempts mutual funds from the regulatory burden of state securities regulators.。

金融市场与金融机构基础(第3章) 英文版答案

金融市场与金融机构基础(第3章) 英文版答案

ANSWERS TO QUESTIONS FOR CHAPTER 3(Questions are in bold print followed by answers.)1. Explain the ways in which a depository institution can accommodate withdrawal and loan demand.A depository institution can accommodate loan and withdrawal demands first by having sufficient cash on hand. In addition it can attract more deposits, borrow from the Fed or other banks, and liquidate some of its other assets.2. Why do you think a debt instrument whose interest rate is changed periodically based on some market interest rate would be more suitable for a depository institution than a long-term debt instrument with a fixed interest rate?This question refers to asset-liability management by a depository institution. An adjustable rate can eliminate or minimize the mismatch of maturity risk. As interest rates rise, the institution would have to pay more for deposits, but would also receive higher payments from its loan.3. What is meant by:a.individual bankingb.institutional bankingc.global bankinga.Individual banking is retail or consumer banking. Such a bank emphasizes individualdeposits, consumer loans and personal financial trust services.b.An institutional bank caters more to commercial, industrial and government customers. Itissues deposits to them and tries to meet their loan needs.c. A global bank encompasses many financial services for both domestic and foreign customers.It is much involved in foreign exchange trading as well as the financial of international trade and investment.4.a.What is the Basel Committee for Bank Supervision?b.What do the two frameworks, Basel I and Basel II, published by the BaselCommittee for Bank Supervision, address regarding banking?a.It is the organization that plays the primary role in establishing risk and managementguidelines for banks throughout the world.b.The frameworks set forth minimum capital requirements and standards.5. Explain each of the following:a.reserve ratiob.required reservesa.The reserve ratio is the percentage of deposits a bank must keep in a non-interest-bearingaccount at the Fed.b.Required reserves are the actual dollar amounts based on a given reserve ratio.6. Explain each of the following types of deposit accounts:a.demand depositb.certificate of depositc.money market demand accounta.Demand deposits (checking accounts) do not pay interest and can be withdrawn at any time(upon demand).b.Certificates of Deposit (CDs) are time deposits which pay a fixed or variable rate of interestover a specified term to maturity. They cannot be withdrawn prior to maturity without a substantial penalty. negotiable CDs (large business deposits) can be traded so that the original owner still obtains liquidity when needed.c.Money Market Demand Accounts (MMDAs) are basically demand or checking accounts thatpay interest. Minimum amounts must be maintained in these accounts so that at least a 7-day interest can be paid. Since many persons find it not possible to maintain this minimum (usually around $2500) there are still plenty of takers for the non-interest-bearing demand deposits.7. How did the Glass-Steagall Act impact the operations of a bank?The Glass-Steagall Act prohibited banks from carrying out certain activities in the securities markets, which are principal investment banking activities. It also prohibited banks from engaging in insurance activities.28. The following is the book value of the assets of a bank:Asset Book Value (in millions)U.S. Treasury securities $ 50Municipal general obligationbonds50Residential mortgages 400Commercial loans 200Total book value $700a.Calculate the credit risk-weighted assets using the following information:Asset Risk WeightU.S. Treasury securities 0%Municipal general obligationbonds20Residential mortgages 50Commercial loans 100b.What is the minimum core capital requirement?c.What is the minimum total capital requirement?a.The risk weighted assets would be $410b.The minimum core capital is $28 million (.04X700) i.e., 4% of book value.c.Minimum total capital (core plus supplementary capital) is 32.8 million, .08X410, which is8% of the risk-weighted assets.9. In later chapters, we will discuss a measure called duration. Duration is a measure of the sensitivity of an asset or a liability to a change in interest rates. Why would bank management want to know the duration of its assets and liabilities?a.Duration is a measure of the approximate change in the value of an asset for a 1% change ininterest rates.b.If an asset has a duration of 5, then the portfolio’s value will change by approximately 5% ifinterest rate changes by 100 basis points.3-310.a.Explain how bank regulators have incorporated interest risk into capitalrequirements.b.Explain how S&L regulators have incorporated interest rate risk into capitalrequirements.a.The FDIC Improvement Act of 1991, required regulators of DI to incorporate interest raterisk into capital requirements. It is based on measuring interest rate sensitivity of the assets and liabilities of the bank.b.The OST adopted a regulation that incorporates interest rate risk for S&L. It specifies that ifthrift has greater interest rate risk exposure, there would be a deduction of its risk-based capital. The risk is specified as a decline in net profit value as a result of 2% change in market interest rate.11. When the manager of a bank’s portfolio of securities considers alternative investments, she is also concerned about the risk weight assigned to the security. Why?The Basel guidelines give weight to the credit risk of various instruments. These weights are 0%, 20%, 50% and 100%. The book value of the asset is multiplied by the credit risk weights to determine the amount of core and supplementary capital that the bank will need to support that asset.12. You and a friend are discussing the savings and loan crisis. She states that “the whole mess started in the early 1980s.When short-term rates skyrocketed, S&Ls got killed—their spread income went from positive to negative. They were borrowing short and lending long.”a.What does she mean by “borrowing short and lending long”?b.Are higher or lower interest rates beneficial to an institution that borrows shortand lends long?a.In this context, borrowing short and lending long refers to the balance sheet structure ofS&Ls. Their sources of funds (liabilities) are short-term (mainly deposits) and their uses (assets) are long-term in nature (e.g. residential mortgages).b.Since long-term rates tend to be higher than short-term ones, stable interest rates would bethe best situation. However, rising interest rates would increase the cost of funds for S&Ls without fully compensating higher returns on assets. Hence a decline in interest rate spread or margin. Thus lower rates, having an opposite effect, would be more beneficial.13. Consider this headline from the New York Times of March 26, 1933: “Bankers will fight Deposit Guarantees.” In this article, it is stated that bankers argue that deposit guarantees will encourage bad banking. Explain why.The barrier imposed by Glass-Steagall act was finally destroyed by the Gramm-Leach Bliley Act of 1999. This act modified parts of the BHC Act so as to permit affiliations between banks and insurance underwriters. It created a new financial holding company, which is authorized to4engage in underwriting and selling securities. The act preserved the right of state to regulate insurance activities, but prohibits state actions that have would adversely affected bank-affiliated firms from selling insurance on an equal basis with other insurance agents.14. How did the Gramm-Leach-Bliley Act of 1999 expand the activities permitted by banks?a.Deposit insurance provides a safety net and can thus make depositors indifferent to thesoundness of the depository recipients of their funds. With depositors exercising little discipline through the cost of deposits, the incentive of some banks owners to control risk-taking accrue to the owners. It becomes a “heads I win, tails you lose” situation.b.One the positive side, deposit insurance provides a comfort to depositors and thus attractsdepositors to financial institutions. But such insurance carries a moral hazard, it can be costly and, unless premiums are risk-based, it forces the very sound banks to subsidize the very risky ones.15. The following quotation is from the October 29, 1990 issue of Corporate Financing Week:Chase Manhattan Bank is preparing its first asset-backed debt issue, becomingthe last major consumer bank to plan to access the growing market, Street asset-backed officialsSaid…Asset-backed offerings enable banks to remove credit card or other loanreceivables from their balance sheets, which helps them comply with capitalrequirements.a.What capital requirements is this article referring to?b.Explain why asset securitization reduces capital requirements.a.The capital requirements mentioned are risk based capital as specified under the BaselAgreement, which forces banks to hold minimum amounts of equity against risk-based assets.b.Securitization effectively eliminates high risk based loans from the balance sheet. The capitalrequirements in the case of asset securitization are lower than for a straight loan.16. Comment on this statement: The risk-based guidelines for commercial banks attempt to gauge the interest rate risk associated with a bank’s balance sheet.This statement is incorrect. The risk-based capital guidelines deal with credit risk, not interest-rate risk, which is the risk of adverse changes of interest rates on the portfolio position.17.a.What is the primary asset in which savings and loan associations invest?b.Why were banks in a better position than savings and loan associations toweather rising interest rates?a.Savings and Loans invest primarily in residential mortgages.b.During 1980's, although banks also suffered from the effects of deregulation and rising3-5interest rates, relatively they were in a better position than S&L association because of their superior asset-liability management.618. What federal agency regulates the activities of credit unions?The principal federal regulatory agency is the National Credit Union Administration.3-7。

金融机构管理 课后习题答案

金融机构管理 课后习题答案

Chapter OneWhy Are Financial Intermediaries Special?Chapter OutlineIntroductionFinancial Intermediaries’ Specialness•Information Costs•Liquidity and Price Risk•Other Special ServicesOther Aspects of Specialness•The Transmission of Monetary Policy•Credit Allocation•Intergenerational Wealth Transfers or Time Intermediation •Payment Services•Denomination IntermediationSpecialness and Regulation•Safety and Soundness Regulation•Monetary Policy Regulation•Credit Allocation Regulation•Consumer Protection Regulation•Investor Protection Regulation•Entry RegulationThe Changing Dynamics of Specialness•Trends in the United States•Future Trends•Global IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter One1. Identify and briefly explain the five risks common to financial institutions.Default or credit risk of assets, interest rate risk caused by maturity mismatches between assets and liabilities, liability withdrawal or liquidity risk, underwriting risk, and operating cost risks.2. Explain how economic transactions between household savers of funds and corporate users of funds would occur in a world without financial intermediaries (FIs).In a world without FIs the users of corporate funds in the economy would have to approach directly the household savers of funds in order to satisfy their borrowing needs. This process would be extremely costly because of the up-front information costs faced by potential lenders. Cost inefficiencies would arise with the identification of potential borrowers, the pooling of small savings into loans of sufficient size to finance corporate activities, and the assessment of risk and investment opportunities. Moreover, lenders would have to monitor the activities of borrowers over each loan's life span. The net result would be an imperfect allocation of resources in an economy.3. Identify and explain three economic disincentives that probably would dampen the flow offunds between household savers of funds and corporate users of funds in an economic world without financial intermediaries.Investors generally are averse to purchasing securities directly because of (a) monitoring costs, (b) liquidity costs, and (c) price risk. Monitoring the activities of borrowers requires extensive time, expense, and expertise. As a result, households would prefer to leave this activity to others, and by definition, the resulting lack of monitoring would increase the riskiness of investing in corporate debt and equity markets. The long-term nature of corporate equity and debt would likely eliminate at least a portion of those households willing to lend money, as the preference of many for near-cash liquidity would dominate the extra returns which may be available. Third, the price risk of transactions on the secondary markets would increase without the information flows and services generated by high volume.4. Identify and explain the two functions in which FIs may specialize that enable the smoothflow of funds from household savers to corporate users.FIs serve as conduits between users and savers of funds by providing a brokerage function and by engaging in the asset transformation function. The brokerage function can benefit both savers and users of funds and can vary according to the firm. FIs may provide only transaction services, such as discount brokerages, or they also may offer advisory services which help reduce information costs, such as full-line firms like Merrill Lynch. The asset transformation function is accomplished by issuing their own securities, such as deposits and insurance policies that are more attractive to household savers, and using the proceeds to purchase the primary securities ofcorporations. Thus, FIs take on the costs associated with the purchase of securities.5. In what sense are the financial claims of FIs considered secondary securities, while thefinancial claims of commercial corporations are considered primary securities? How does the transformation process, or intermediation, reduce the risk, or economic disincentives, to the savers?The funds raised by the financial claims issued by commercial corporations are used to invest in real assets. These financial claims, which are considered primary securities, are purchased by FIs whose financial claims therefore are considered secondary securities. Savers who invest in the financial claims of FIs are indirectly investing in the primary securities of commercial corporations. However, the information gathering and evaluation expenses, monitoring expenses, liquidity costs, and price risk of placing the investments directly with the commercial corporation are reduced because of the efficiencies of the FI.6. Explain how financial institutions act as delegated monitors. What secondary benefitsoften accrue to the entire financial system because of this monitoring process?By putting excess funds into financial institutions, individual investors give to the FIs the responsibility of deciding who should receive the money and of ensuring that the money is utilized properly by the borrower. In this sense the depositors have delegated the FI to act as a monitor on their behalf. The FI can collect information more efficiently than individual investors. Further, the FI can utilize this information to create new products, such as commercial loans, that continually update the information pool. This more frequent monitoring process sends important informational signals to other participants in the market, a process that reduces information imperfection and asymmetry between the ultimate sources and users of funds in the economy.7. What are five general areas of FI specialness that are caused by providing various servicesto sectors of the economy?First, FIs collect and process information more efficiently than individual savers. Second, FIs provide secondary claims to household savers which often have better liquidity characteristics than primary securities such as equities and bonds. Third, by diversifying the asset base FIs provide secondary securities with lower price-risk conditions than primary securities. Fourth, FIs provide economies of scale in transaction costs because assets are purchased in larger amounts. Finally, FIs provide maturity intermediation to the economy which allows the introduction of additional types of investment contracts, such as mortgage loans, that are financed with short-term deposits.8. How do FIs solve the information and related agency costs when household savers investdirectly in securities issued by corporations? What are agency costs?Agency costs occur when owners or managers take actions that are not in the best interests of the equity investor or lender. These costs typically result from the failure to adequately monitor theactivities of the borrower. If no other lender performs these tasks, the lender is subject to agency costs as the firm may not satisfy the covenants in the lending agreement. Because the FI invests the funds of many small savers, the FI has a greater incentive to collect information and monitor the activities of the borrower.9. What often is the benefit to the lenders, borrowers, and financial markets in general of thesolution to the information problem provided by the large financial institutions?One benefit to the solution process is the development of new secondary securities that allow even further improvements in the monitoring process. An example is the bank loan that is renewed more quickly than long-term debt. The renewal process updates the financial and operating information of the firm more frequently, thereby reducing the need for restrictive bond covenants that may be difficult and costly to implement.10. How do FIs alleviate the problem of liquidity risk faced by investors who wish to invest inthe securities of corporations?Liquidity risk occurs when savers are not able to sell their securities on demand. Commercial banks, for example, offer deposits that can be withdrawn at any time. Yet the banks make long-term loans or invest in illiquid assets because they are able to diversify their portfolios and better monitor the performance of firms that have borrowed or issued securities. Thus individual investors are able to realize the benefits of investing in primary assets without accepting the liquidity risk of direct investment.11. How do financial institutions help individual savers diversify their portfolio risks? Whichtype of financial institution is best able to achieve this goal?Money placed in any financial institution will result in a claim on a more diversified portfolio. Banks lend money to many different types of corporate, consumer, and government customers, and insurance companies have investments in many different types of assets. Investment in a mutual fund may generate the greatest diversification benefit because of the fund’s investment in a wide array of stocks and fixed income securities.12. How can financial institutions invest in high-risk assets with funding provided by low-riskliabilities from savers?Diversification of risk occurs with investments in assets that are not perfectly positively correlated. One result of extensive diversification is that the average risk of the asset base of an FI will be less than the average risk of the individual assets in which it has invested. Thus individual investors realize some of the returns of high-risk assets without accepting the corresponding risk characteristics.13. How can individual savers use financial institutions to reduce the transaction costs ofinvesting in financial assets?By pooling the assets of many small investors, FIs can gain economies of scale in transaction costs. This benefit occurs whether the FI is lending to a corporate or retail customer, or purchasing assets in the money and capital markets. In either case, operating activities that are designed to deal in large volumes typically are more efficient than those activities designed for small volumes.14. What is maturity intermediation? What are some of the ways in which the risks ofmaturity intermediation are managed by financial intermediaries?If net borrowers and net lenders have different optimal time horizons, FIs can service both sectors by matching their asset and liability maturities through on- and off-balance sheet hedging activities and flexible access to the financial markets. For example, the FI can offer the relatively short-term liabilities desired by households and also satisfy the demand for long-term loans such as home mortgages. By investing in a portfolio of long-and short-term assets that have variable- and fixed-rate components, the FI can reduce maturity risk exposure by utilizing liabilities that have similar variable- and fixed-rate characteristics, or by using futures, options, swaps, and other derivative products.15. What are five areas of institution-specific FI specialness, and which types of institutions aremost likely to be the service providers?First, commercial banks and other depository institutions are key players for the transmission of monetary policy from the central bank to the rest of the economy. Second, specific FIs often are identified as the major source of finance for certain sectors of the economy. For example, S&Ls and savings banks traditionally serve the credit needs of the residential real estate market. Third, life insurance and pension funds commonly are encouraged to provide mechanisms to transfer wealth across generations. Fourth, depository institutions efficiently provide payment services to benefit the economy. Finally, mutual funds provide denomination intermediation by allowing small investors to purchase pieces of assets with large minimum sizes such as negotiable CDs and commercial paper issues.16. How do depository institutions such as commercial banks assist in the implementation andtransmission of monetary policy?The Federal Reserve Board can involve directly the commercial banks in the implementation of monetary policy through changes in the reserve requirements and the discount rate. The open market sale and purchase of Treasury securities by the Fed involves the banks in the implementation of monetary policy in a less direct manner.17. What is meant by credit allocation regulation? What social benefit is this type ofregulation intended to provide?Credit allocation regulation refers to the requirement faced by FIs to lend to certain sectors of the economy, which are considered to be socially important. These may include housing and farming. Presumably the provision of credit to make houses more affordable or farms moreviable leads to a more stable and productive society.18. Which intermediaries best fulfill the intergenerational wealth transfer function? What isthis wealth transfer process?Life insurance and pension funds often receive special taxation relief and other subsidies to assist in the transfer of wealth from one generation to another. In effect, the wealth transfer process allows the accumulation of wealth by one generation to be transferred directly to one or more younger generations by establishing life insurance policies and trust provisions in pension plans. Often this wealth transfer process avoids the full marginal tax treatment that a direct payment would incur.19. What are two of the most important payment services provided by financial institutions?To what extent do these services efficiently provide benefits to the economy?The two most important payment services are check clearing and wire transfer services. Any breakdown in these systems would produce gridlock in the payment system with resulting harmful effects to the economy at both the domestic and potentially the international level.20. What is denomination intermediation? How do FIs assist in this process?Denomination intermediation is the process whereby small investors are able to purchase pieces of assets that normally are sold only in large denominations. Individual savers often invest small amounts in mutual funds. The mutual funds pool these small amounts and purchase negotiable CDs which can only be sold in minimum increments of $100,000, but which often are sold in million dollar packages. Similarly, commercial paper often is sold only in minimum amounts of $250,000. Therefore small investors can benefit in the returns and low risk which these assets typically offer.21. What is negative externality? In what ways do the existence of negative externalities justifythe extra regulatory attention received by financial institutions?A negative externality refers to the action by one party that has an adverse affect on some third party who is not part of the original transaction. For example, in an industrial setting, smoke from a factory that lowers surrounding property values may be viewed as a negative externality. For financial institutions, one concern is the contagion effect that can arise when the failure of one FI can cast doubt on the solvency of other institutions in that industry.22. If financial markets operated perfectly and costlessly, would there be a need forfinancial intermediaries?To a certain extent, financial intermediation exists because of financial market imperfections. If information is available costlessly to all participants, savers would not need intermediaries to act as either their brokers or their delegated monitors. However, if there are social benefits tointermediation, such as the transmission of monetary policy or credit allocation, then FIs would exist even in the absence of financial market imperfections.23. What is mortgage redlining?Mortgage redlining occurs when a lender specifically defines a geographic area in which it refuses to make any loans. The term arose because of the area often was outlined on a map with a red pencil.24. Why are FIs among the most regulated sectors in the world? When is netregulatory burden positive?FIs are required to enhance the efficient operation of the economy. Successful financial intermediaries provide sources of financing that fund economic growth opportunity that ultimately raises the overall level of economic activity. Moreover, successful financial intermediaries provide transaction services to the economy that facilitate trade and wealth accumulation.Conversely, distressed FIs create negative externalities for the entire economy. That is, the adverse impact of an FI failure is greater than just the loss to shareholders and other private claimants on the FI's assets. For example, the local market suffers if an FI fails and other FIs also may be thrown into financial distress by a contagion effect. Therefore, since some of the costs of the failure of an FI are generally borne by society at large, the government intervenes in the management of these institutions to protect society's interests. This intervention takes the form of regulation.However, the need for regulation to minimize social costs may impose private costs to the firms that would not exist without regulation. This additional private cost is defined as a net regulatory burden. Examples include the cost of holding excess capital and/or excess reserves and the extra costs of providing information. Although they may be socially beneficial, these costs add to private operating costs. To the extent that these additional costs help to avoid negative externalities and to ensure the smooth and efficient operation of the economy, the net regulatory burden is positive.25. What forms of protection and regulation do regulators of FIs impose to ensuretheir safety and soundness?Regulators have issued several guidelines to insure the safety and soundness of FIs:a. FIs are required to diversify their assets. For example, banks cannot lend morethan 10 percent of their equity to a single borrower.b. FIs are required to maintain minimum amounts of capital to cushion anyunexpected losses. In the case of banks, the Basle standards require a minimum core and supplementary capital of 8 percent of their risk-adjusted assets.c. Regulators have set up guaranty funds such as BIF for commercial banks, SIPCfor securities firms, and state guaranty funds for insurance firms to protectindividual investors.d. Regulators also engage in periodic monitoring and surveillance, such as on-siteexaminations, and request periodic information from the FIs.26. In the transmission of monetary policy, what is the difference between insidemoney and outside money? How does the Federal Reserve Board try to control the amount of inside money? How can this regulatory position create a cost for the depository financial institutions?Outside money is that part of the money supply directly produced and controlled by the Fed, for example, coins and currency. Inside money refers to bank deposits not directly controlled by the Fed. The Fed can influence this amount of money by reserve requirement and discount rate policies. In cases where the level of required reserves exceeds the level considered optimal by the FI, the inability to use the excess reserves to generate revenue may be considered a tax or cost of providing intermediation.27. What are some examples of credit allocation regulation? How can this attemptto create social benefits create costs to the private institution?The qualified thrift lender test (QTL) requires thrifts to hold 65 percent of their assets in residential mortgage-related assets to retain the thrift charter. Some states have enacted usury laws that place maximum restrictions on the interest rates that can be charged on mortgages and/or consumer loans. These types of restrictions often create additional operating costs to the FI and almost certainly reduce the amount of profit that could be realized without such regulation.28. What is the purpose of the Home Mortgage Disclosure Act? What are thesocial benefits desired from the legislation? How does the implementation of this legislation create a net regulatory burden on financial institutions?The HMDA was passed by Congress to prevent discrimination in mortgage lending. The social benefit is to ensure that everyone who qualifies financially is provided the opportunity to purchase a house should they so desire. The regulatory burden has been to require a written statement indicating the reasons why credit was or was not granted. Since 1990, the federal regulators have examined millions of mortgage transactions from more than 7,700 institutions each calendar quarter.29. What legislation has been passed specifically to protect investors who use investment banksdirectly or indirectly to purchase securities? Give some examples of the types of abuses for which protection is provided.The Securities Acts of 1933 and 1934 and the Investment Company Act of 1940 were passed byCongress to protect investors against possible abuses such as insider trading, lack of disclosure, outright malfeasance, and breach of fiduciary responsibilities.30. How do regulations regarding barriers to entry and the scope of permitted activities affectthe charter value of financial institutions?The profitability of existing firms will be increased as the direct and indirect costs of establishing competition increase. Direct costs include the actual physical and financial costs of establishing a business. In the case of FIs, the financial costs include raising the necessary minimum capital to receive a charter. Indirect costs include permission from regulatory authorities to receive a charter. Again in the case of FIs this cost involves acceptable leadership to the regulators. As these barriers to entry are stronger, the charter value for existing firms will be higher.31. What reasons have been given for the growth of investment companies at the expense of“traditional” banks and insurance companies?The recent growth of investment companies can be attributed to two major factors: a. Investors have demanded increased access to direct securities markets.Investment companies and pension funds allow investors to take positions indirect securities markets while still obtaining the risk diversification, monitoring, and transactional efficiency benefits of financial intermediation. Some experts would argue that this growth is the result of increased sophistication on the part of investors; others would argue that the ability to use these markets has caused the increased investor awareness. The growth in these assets is inarguable.b. Recent episodes of financial distress in both the banking and insuranceindustries have led to an increase in regulation and governmental oversight,thereby increasing the net regulatory burden of “traditional” companies. Assuch, the costs of intermediation have increased, which increases the cost ofproviding services to customers.32. What are some of the methods which banking organizations have employed to reduce thenet regulatory burden? What has been the effect on profitability?Through regulatory changes, FIs have begun changing the mix of business products offered to individual users and providers of funds. For example, banks have acquired mutual funds, have expanded their asset and pension fund management businesses, and have increased the security underwriting activities. In addition, legislation that allows banks to establish branches anywhere in the United States has caused a wave of mergers. As the size of banks has grown, an expansion of possible product offerings has created the potential for lower service costs. Finally, the emphasis in recent years has been on products that generate increases in fee income, and the entire banking industry has benefited from increased profitability in recent years.33. What characteristics of financial products are necessary for financial markets to becomeefficient alternatives to financial intermediaries? Can you give some examples of the commoditization of products which were previously the sole property of financial institutions?Financial markets can replace FIs in the delivery of products that (1) have standardized terms, (2) serve a large number of customers, and (3) are sufficiently understood for investors to be comfortable in assessing their prices. When these three characteristics are met, the products often can be treated as commodities. One example of this process is the migration of over-the-counter options to the publicly traded option markets as trading volume grows and trading terms become standardized.34. In what way has Regulation 144A of the Securities and Exchange Commission provided anincentive to the process of financial disintermediation?Changing technology and a reduction in information costs are rapidly changing the nature of financial transactions, enabling savers to access issuers of securities directly. Section 144A of the SEC is a recent regulatory change that will facilitate the process of disintermediation. The private placement of bonds and equities directly by the issuing firm is an example of a product that historically has been the domain of investment bankers. Although historically private placement assets had restrictions against trading, regulators have given permission for these assets to trade among large investors who have assets of more than $100 million. As the market grows, this minimum asset size restriction may be reduced.Chapter TwoThe Financial Services Industry: Depository InstitutionsChapter OutlineIntroductionCommercial Banks•Size, Structure, and Composition of the Industry•Balance Sheet and Recent Trends•Other Fee-Generating Activities•Regulation•Industry PerformanceSavings Institutions•Savings Associations (SAs)•Savings Banks•Recent Performance of Savings Associations and Savings BanksCredit Unions•Size, Structure, and Composition of the Industry and Recent Trends•Balance Sheets•Regulation•Industry PerformanceGlobal Issues: Japan, China, and GermanySummaryAppendix 2A: Financial Statement Analysis Using a Return on Equity (ROE) FrameworkAppendix 2B: Depository Institutions and Their RegulatorsAppendix 3B: Technology in Commercial BankingSolutions for End-of-Chapter Questions and Problems: Chapter Two1.What are the differences between community banks, regional banks, andmoney-center banks? Contrast the business activities, location, and markets of each of these bank groups.Community banks typically have assets under $1 billion and serve consumer and small business customers in local markets. In 2003, 94.5 percent of the banks in the United States were classified as community banks. However, these banks held only 14.6 percent of the assets of the banking industry. In comparison with regional and money-center banks, community banks typically hold a larger percentage of assets in consumer and real estate loans and a smaller percentage of assets in commercial and industrial loans. These banks also rely more heavily on local deposits and less heavily on borrowed and international funds.Regional banks range in size from several billion dollars to several hundred billion dollars in assets. The banks normally are headquartered in larger regional cities and often have offices and branches in locations throughout large portions of the United States. Although these banks provide lending products to large corporate customers, many of the regional banks have developed sophisticated electronic and branching services to consumer and residential customers. Regional banks utilize retail deposit bases for funding, but also develop relationships with large corporate customers and international money centers.Money center banks rely heavily on nondeposit or borrowed sources of funds. Some of these banks have no retail branch systems, and most regional banks are major participants in foreign currency markets. These banks compete with the larger regional banks for large commercial loans and with international banks for international commercial loans. Most money center banks have headquarters in New York City.e the data in Table 2-4 for the banks in the two asset size groups (a) $100million-$1 billion and (b) over $10 billion to answer the following questions.a. Why have the ratios for ROA and ROE tended to increase for both groupsover the 1990-2003 period? Identify and discuss the primary variables thataffect ROA and ROE as they relate to these two size groups.The primary reason for the improvements in ROA and ROE in the late 1990smay be related to the continued strength of the macroeconomy that allowedbanks to operate with a reduced regard for bad debts, or loan charge-offproblems. In addition, the continued low interest rate environment hasprovided relatively low-cost sources of funds, and a shift toward growth in fee income has provided additional sources of revenue in many product lines.。

金融机构管理习题答案

金融机构管理习题答案

Chapter NineInterest Rate Risk IIChapter Outline IntroductionDurationA General Formula for Duration•The Duration of Interest Bearing Bonds•The Duration of a Zero-Coupon Bond•The Duration of a Consol Bond (Perpetuities)Features of Duration•Duration and Maturity•Duration and Yield•Duration and Coupon InterestThe Economic Meaning of Duration•Semiannual Coupon BondsDuration and Immunization•Duration and Immunizing Future Payments•Immunizing the Whole Balance Sheet of an FI Immunization and Regulatory ConsiderationsDifficulties in Applying the Duration Model•Duration Matching can be Costly•Immunization is a Dynamic Problem•Large Interest Rate Changes and ConvexitySummaryAppendix 9A: Incorporating Convexity into the Duration Model •The Problem of the Flat Term Structure•The Problem of Default Risk•Floating-Rate Loans and Bonds•Demand Deposits and Passbook Savings•Mortgages and Mortgage-Backed Securities•Futures, Options, Swaps, Caps, and Other Contingent ClaimsSolutions for End-of-Chapter Questions and Problems: Chapter Nine1. What are the two different general interpretations of the concept of duration, and what isthe technical definition of this term? How does duration differ from maturity?Duration measures the average life of an asset or liability in economic terms. As such, duration has economic meaning as the interest sensitivity (or interest elasticity) of an asset’s value to changes in the interest rate. Duration differs from maturity as a measure of interest ratesensitivity because duration takes into account the time of arrival and the rate of reinvestment ofall cash flows during the assets life. Technically, duration is the weighted-average time to maturity using the relative present values of the cash flows as the weights.2. Two bonds are available for purchase in the financial markets. The first bond is a 2-year,$1,000 bond that pays an annual coupon of 10 percent. The second bond is a 2-year,$1,000, zero-coupon bond.a. What is the duration of the coupon bond if the current yield-to-maturity (YTM) is 8percent? 10 percent? 12 percent? (Hint: You may wish to create a spreadsheetprogram to assist in the calculations.)Coupon BondPar value = $1,000 Coupon = 0.10 Annual payments YTM = 0.08 Maturity = 2Time Cash Flow PVIF PV of CF PV*CF*T1 $100.00 0.92593 $92.59 $92.592 $1,100.00 0.85734 $943.07 $1,886.15Price = $1,035.67Numerator = $1,978.74 Duration = 1.9106 = Numerator/Price YTM = 0.10Time Cash Flow PVIF PV of CF PV*CF*T1 $100.00 0.90909 $90.91 $90.912 $1,100.00 0.82645 $909.09 $1,818.18Price = $1,000.00Numerator = $1,909.09 Duration = 1.9091 = Numerator/Price YTM = 0.12Time Cash Flow PVIF PV of CF PV*CF*T1 $100.00 0.89286 $89.29 $89.292 $1,100.00 0.79719 $876.91 $1,753.83Price = $966.20Numerator = $1,843.11 Duration = 1.9076 = Numerator/Priceb. How does the change in the current YTM affect the duration of this coupon bond?Increasing the yield-to-maturity decreases the duration of the bond.c. Calculate the duration of the zero-coupon bond with a YTM of 8 percent, 10 percent,and 12 percent.Zero Coupon BondPar value = $1,000 Coupon = 0.00YTM = 0.08 Maturity = 2Time Cash Flow PVIF PV of CF PV*CF*T1 $0.00 0.92593 $0.00 $0.002 $1,000.00 0.85734 $857.34 $1,714.68Price = $857.34Numerator = $1,714.68 Duration = 2.0000 = Numerator/Price YTM = 0.10Time Cash Flow PVIF PV of CF PV*CF*T1 $0.00 0.90909 $0.00 $0.002 $1,000.00 0.82645 $826.45 $1,652.89Price = $826.45Numerator = $1,652.89 Duration = 2.0000 = Numerator/Price YTM = 0.12Time Cash Flow PVIF PV of CF PV*CF*T1 $0.00 0.89286 $0.00 $0.002 $1,000.00 0.79719 $797.19 $1,594.39Price = $797.19Numerator = $1,594.39 Duration = 2.0000 = Numerator/Priced. How does the change in the current YTM affect the duration of the zero-coupon bond?Changing the yield-to-maturity does not affect the duration of the zero coupon bond.e. Why does the change in the YTM affect the coupon bond differently than the zero-coupon bond?Increasing the YTM on the coupon bond allows for a higher reinvestment income that more quickly recovers the initial investment. The zero-coupon bond has no cash flow untilmaturity.3. A one-year, $100,000 loan carries a market interest rate of 12 percent. The loan requires payment of accrued interest and one-half of the principal at the end of six months. The remaining principal and accrued interest are due at the end of the year. a. What is the duration of this loan?Cash flow in 6 months = $100,000 x .12 x .5 + $50,000 = $56,000 interest and principal. Cash flow in 1 year = $50,000 x 1.06 = $53,000 interest and principal. Time Cash Flow PVIF CF*PVIF T*CF*CVIF1 $56,000 0.943396 $52,830.19 $52,830.192 $53,000 0.889996 $47,169.81 $94,339.62Price = $100,000.00 $147,169.81 = Numerator735849.02100.000,100$81.169,147$==x D yearsb. What will be the cash flows at the end of 6 months and at the end of the year? Cash flow in 6 months = $100,000 x .12 x .5 + $50,000 = $56,000 interest and principal. Cash flow in 1 year = $50,000 x 1.06 = $53,000 interest and principal.c. What is the present value of each cash flow discounted at the market rate? What is the total present value? $56,000 ÷ 1.06 = $52,830.19 = PVCF 1$53,000 ÷ (1.06)2 = $47,169.81 = PVCF 2=$100,000.00 = PV Total CFd. What proportion of the total present value of cash flows occurs at the end of 6 months? What proportion occurs at the end of the year? Proportion t=.5 = $52,830.19 ÷ $100,000 x 100 = 52.830 percent. Proportion t=1 = $47,169.81 ÷ $100,000 x 100 = 47.169 percent.e. What is the weighted-average life of the cash flows on the loan?D = 0.5283 x 0.5 years + 0.47169 x 1.0 years = 0.26415 + 0.47169 = 0.73584 years. f. How does this weighted-average life compare to the duration calculated in part (a) above? The two values are the same.4. What is the duration of a five-year, $1,000 Treasury bond with a 10 percent semiannualcoupon selling at par? Selling with a YTM of 12 percent? 14 percent? What can youconclude about the relationship between duration and yield to maturity? Plot therelationship. Why does this relationship exist?Five-year Treasury BondPar value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.10 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T0.5 $50.00 0.95238 $47.62 $23.81 PVIF = 1/(1+YTM/2)^(Time*2)1 $50.00 0.90703 $45.35 $45.351.5 $50.00 0.86384 $43.19 $64.792 $50.00 0.8227 $41.14 $82.272.5 $50.00 0.78353 $39.18 $97.943 $50.00 0.74622 $37.31 $111.933.5$50.00 0.71068 $35.53 $124.374$50.00 0.67684 $33.84 $135.374.5 $50.00 0.64461 $32.23 $145.045 $1,050.00 0.61391 $644.61 $3,223.04Price = $1,000.00Numerator = $4,053.91 Duration = 4.0539 = Numerator/Price Five-year Treasury BondPar value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.12 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T0.5 $50.00 0.9434 $47.17 $23.58 Duration YTM1 $50.00 0.89 $44.50 $44.50 4.0539 0.101.5 $50.00 0.83962 $41.98 $62.97 4.0113 0.122 $50.00 0.79209 $39.60 $79.21 3.9676 0.142.5 $50.00 0.74726 $37.36 $93.413 $50.00 0.70496 $35.25 $105.743.5$50.00 0.66506 $33.25 $116.384$50.00 0.62741 $31.37 $125.484.5 $50.00 0.5919 $29.59 $133.185 $1,050.00 0.55839 $586.31 $2,931.57 .Price = $926.40Numerator = $3,716.03 Duration = 4.0113 = Numerator/PriceFive-year Treasury Bond Par value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.14 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T 0.5 $50.00 0.93458 $46.73 $23.36 1 $50.00 0.87344 $43.67 $43.67 1.5 $50.00 0.8163 $40.81 $61.22 2 $50.00 0.7629 $38.14 $76.29 2.5 $50.00 0.71299 $35.65 $89.12 3 $50.00 0.66634 $33.32 $99.95 3.5 $50.00 0.62275 $31.14 $108.98 4 $50.00 0.58201 $29.10 $116.40 4.5 $50.00 0.54393 $27.20 $122.39 5 $1,050.00 0.50835 $533.77 $2,668.83 Price = $859.53Numerator = $3,410.22 Duration = 3.9676 = Numerator/Price5. Consider three Treasury bonds each of which has a 10 percent semiannual coupon and trades at par.a. Calculate the duration for a bond that has a maturity of 4 years, 3 years, and 2 years? Please see the calculations on the next page.a. Four-year Treasury BondPar value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.10 Maturity = 4Time Cash Flow PVIF PV of CF PV*CF*T0.5 $50.00 0.952381 $47.62 $23.81 PVIF = 1/(1+YTM/2)^(Time*2)1 $50.00 0.907029 $45.35 $45.351.5 $50.00 0.863838 $43.19 $64.792 $50.00 0.822702 $41.14 $82.272.5 $50.00 0.783526 $39.18 $97.943 $50.00 0.746215 $37.31 $111.933.5$50.00 0.710681 $35.53 $124.374$1,050.00 0.676839 $710.68 $2,842.73Price = $1,000.00Numerator = $3,393.19 Duration = 3.3932 = Numerator/Price Three-year Treasury BondPar value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.10 Maturity = 3Time Cash Flow PVIF PV of CF PV*CF*T0.5 $50.00 0.952381 $47.62 $23.81 PVIF = 1/(1+YTM/2)^(Time*2)1 $50.00 0.907029 $45.35 $45.351.5 $50.00 0.863838 $43.19 $64.792 $50.00 0.822702 $41.14 $82.272.5 $50.00 0.783526 $39.18 $97.943 $1,050.00 0.746215 $783.53 $2,350.58Price = $1,000.00Numerator = $2,664.74 Duration = 2.6647 = Numerator/Price Two-year Treasury BondPar value = $1,000 Coupon = 0.10 Semiannual payments YTM = 0.10 Maturity = 2Time Cash Flow PVIF PV of CF PV*CF*T0.5 $50.00 0.952381 $47.62 $23.81 PVIF = 1/(1+YTM/2)^(Time*2)1 $50.00 0.907029 $45.35 $45.351.5 $50.00 0.863838 $43.19 $64.792 $1,050.00 0.822702 $863.84 $1,727.68Price = $1,000.00Numerator = $1,861.62 Duration = 1.8616 = Numerator/Priceb. What conclusions can you reach about the relationship of duration and the time tomaturity? Plot the relationship.As maturity decreases, duration decreases at a decreasing rate. Although the graph below does not illustrate with great precision, the change in duration is less than the change in time to maturity.6. A six-year, $10,000 CD pays 6 percent interest annually. What is the duration of the CD? What would be the duration if interest were paid semiannually? What is the relationship of duration to the relative frequency of interest payments?Six-year CDPar value = $10,000 Coupon = 0.06 Annual payments YTM = 0.06 Maturity = 6 Time Cash Flow PVIF PV of CF PV*CF*T 1 $600.00 0.94340 $566.04 $566.04 PVIF = 1/(1+YTM)^(Time) 2 $600.00 0.89000 $534.00 $1,068.00 3 $600.00 0.83962 $503.77 $1,511.31 4 $600.00 0.79209 $475.26 $1,901.02 5 $600.00 0.74726 $448.35 $2,241.77 6 $10,600 0.70496 $7,472.58 $44,835.49Price = $10,000.00Numerator = $52,123.64 Duration = 5.2124 = Numerator/PriceSix-year CDPar value = $10,000 Coupon = 0.06 Semiannual payments YTM = 0.06 Maturity = 6Time Cash Flow PVIF PV of CF PV*CF*T 0.5 $300.00 0.970874 $291.26 $145.63 PVIF = 1/(1+YTM/2)^(Time*2) 1 $300.00 0.942596 $282.78 $282.78 1.5 $300.00 0.915142 $274.54$411.812 $300.00 0.888487 $266.55 $533.092.5 $300.00 0.862609 $258.78 $646.963 $300.00 0.837484 $251.25 $753.743.5$300.00 0.813092 $243.93 $853.754$300.00 0.789409 $236.82 $947.294.5 $300.00 0.766417 $229.93 $1,034.665 $300.00 0.744094 $223.23 $1,116.145.5 $300.00 0.722421 $216.73 $1,192.006 $10,300 0.701380 $7,224.21 $43,345.28Price = $10,000.00Numerator = $51,263.12 Duration = 5.1263 = Numerator/Price Duration decreases as the frequency of payments increases. This relationship occurs because (a) cash is being received more quickly, and (b) reinvestment income will occur more quickly from the earlier cash flows.7. What is the duration of a consol bond that sells at a YTM of 8 percent? 10 percent? 12percent? What is a consol bond? Would a consol trading at a YTM of 10 percent have agreater duration than a 20-year zero-coupon bond trading at the same YTM? Why?A consol is a bond that pays a fixed coupon each year forever. A consol Consol Bond trading at a YTM of 10 percent has a duration of 11 years, while a zero- YTM D = 1 + 1/R coupon bond trading at a YTM of 10 percent, or any other YTM, has a 0.08 13.50 years duration of 20 years because no cash flows occur before the twentieth 0.10 11.00 years year. 0.12 9.33 years 8. Maximum Pension Fund is attempting to balance one of the bond portfolios under itsmanagement. The fund has identified three bonds which have five-year maturities andwhich trade at a YTM of 9 percent. The bonds differ only in that the coupons are 7 percent,9 percent, and 11 percent.a. What is the duration for each bond?Five-year BondPar value = $1,000 Coupon = 0.07 Annual payments YTM = 0.09 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $70.00 0.917431 $64.22 $64.22 PVIF = 1/(1+YTM)^(Time)2 $70.00 0.841680 $58.92 $117.843 $70.00 0.772183 $54.05 $162.164 $70.00 0.708425 $49.59 $198.365 $1,070.00 0.649931 $695.43 $3,477.13Price = $922.21Numerator = $4,019.71 Duration = 4.3588 = Numerator/PriceFive-year BondPar value = $1,000 Coupon = 0.09 Annual payments YTM = 0.09 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $90.00 0.917431 $82.57 $82.57 PVIF = 1/(1+YTM)^(Time)2 $90.00 0.841680 $75.75 $151.503 $90.00 0.772183 $69.50 $208.494 $90.00 0.708425 $63.76 $255.035 $1,090.00 0.649931 $708.43 $3,542.13Price = $1,000.00Numerator = $4,239.72 Duration = 4.2397 = Numerator/Price Five-year BondPar value = $1,000 Coupon = 0.11 Annual payments YTM = 0.09 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $110.00 0.917431 $100.92 $100.92 PVIF = 1/(1+YTM)^(Time)2 $110.00 0.841680 $92.58 $185.173 $110.00 0.772183 $84.94 $254.824 $110.00 0.708425 $77.93 $311.715 $1,110.00 0.649931 $721.42 $3,607.12Price = $1,077.79Numerator = $4,459.73 Duration = 4.1378 = Numerator/Priceb. What is the relationship between duration and the amount of coupon interest that is paid?Plot the relationship.9. An insurance company is analyzing three bonds and is using duration as the measure ofinterest rate risk. All three bonds trade at a YTM of 10 percent and have $10,000 parvalues. The bonds differ only in the amount of annual coupon interest that they pay: 8, 10, or 12 percent.a. What is the duration for each five-year bond?Five-year BondPar value = $10,000 Coupon = 0.08 Annual payments YTM = 0.10 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $800.00 0.909091 $727.27 $727.27 PVIF = 1/(1+YTM)^(Time)2 $800.00 0.826446 $661.16 $1,322.313 $800.00 0.751315 $601.05 $1,803.164 $800.00 0.683013 $546.41 $2,185.645 $10,800.00 0.620921 $6,705.95 $33,529.75Price = $9,241.84Numerator = $39,568.14 Duration = 4.2814 = Numerator/Price Five-year BondPar value = $10,000 Coupon = 0.10 Annual payments YTM = 0.10 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $1,000.00 0.909091 $909.09 $909.09 PVIF = 1/(1+YTM)^(Time)2 $1,000.00 0.826446 $826.45 $1,652.893 $1,000.00 0.751315 $751.31 $2,253.944 $1,000.00 0.683013 $683.01 $2,732.055 $11,000.00 0.620921 $6,830.13 $34,150.67Price = $10,000.00Numerator = $41,698.65 Duration = 4.1699 = Numerator/Price Five-year BondPar value = $10,000 Coupon = 0.12 Annual payments YTM = 0.10 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $1,200.00 0.909091 $1,090.91 $1,090.91 PVIF = 1/(1+YTM)^(Time)2 $1,200.00 0.826446 $991.74 $1,983.473 $1,200.00 0.751315 $901.58 $2,704.734 $1,200.00 0.683013 $819.62 $3,278.465 $11,200.00 0.620921 $6,954.32 $34,771.59Price = $10,758.16Numerator = $43,829.17 Duration = 4.0740 = Numerator/Priceb. What is the relationship between duration and the amount of coupon interest that is paid?10. You can obtain a loan for $100,000 at a rate of 10 percent for two years. You have a choiceof either paying the principal at the end of the second year or amortizing the loan, that is, paying interest and principal in equal payments each year. The loan is priced at par. a. What is the duration of the loan under both methods of payment?Two-year loan: Principal and interest at end of year two. Par value = 100,000 Coupon = 0.00 No annual payments YTM = 0.10 Maturity = 2Time Cash Flow PVIF PV of CF PV*CF*T 1 $0.00 0.90909 $0.00 $0.00 PVIF = 1/(1+YTM)^(Time) 2 $121,000 0.82645 $100,000.0 200,000.00 Price = $100,000.0 Numerator = 200,000.00 Duration = 2.0000 = Numerator/Price Two-year loan: Interest at end of year one, P & I at end of year two. Par value = 100,000 Coupon = 0.10 Annual payments YTM = 0.10 Maturity = 2 Time Cash Flow PVIF PV of CF PV*CF*T 1 $10,000 0.909091 $9,090.91 $9,090.91 PVIF = 1/(1+YTM)^(Time) 2 $110,000 0.826446 $90,909.09 181,818.18 Price = $100,000.0 Numerator = 190,909.09 Duration = 1.9091 = Numerator/Price Two-year loan: Amortized over two years. Amortized payment of $57.619.05 Par value = 100,000 Coupon = 0.10 YTM = 0.10 Maturity = 2 Time Cash Flow PVIF PV of CF PV*CF*T 1 $57,619.05 0.909091 $52,380.95 $52,380.95 PVIF = 1/(1+YTM)^(Time) 2 $57,619.05 0.826446 $47,619.05 $95,238.10 Price = $100,000.0Numerator = 147,619.05 Duration = 1.4762 = Numerator/Priceb. Explain the difference in the two results?11. How is duration related to the interest elasticity of a fixed-income security? What is therelationship between duration and the price of the fixed-income security?Taking the first derivative of a bond’s (or any fixed -income security) price (P) with respect to the yield to maturity (R) provides the following:D R dR P dP-=+)1( The economic interpretation is that D is a measure of the percentage change in price of a bond for a given percentage change in yield to maturity (interest elasticity). This equation can be rewritten to provide a practical application:P R dR D dP ⎥⎦⎤⎢⎣⎡+-=1 In other words, if duration is known, then the change in the price of a bond due to small changes in interest rates, R, can be estimated using the above formula.12. You have discovered that the price of a bond rose from $975 to $995 when the YTM fellfrom 9.75 percent to 9.25 percent. What is the duration of the bond?We know years D years R R P PD 5.45.40975.1005.97520)1(=⇒-=-=+∆∆=-13. Calculate the duration of a 2-year, $1,000 bond that pays an annual coupon of 10 percentand trades at a yield of 14 percent. What is the expected change in the price of the bond if interest rates decline by 0.50 percent (50 basis points)?Two-year Bond Par value = $1,000 Coupon = 0.10 Annual payments YTM = 0.14 Maturity = 2Time Cash Flow PVIF PV of CF PV*CF*T 1 $100.00 0.87719 $87.72 $87.72 PVIF = 1/(1+YTM)^(Time) 2 $1,100.00 0.76947 $846.41 $1,692.83 Price = $934.13Numerator = $1,780.55 Duration = 1.9061 = Numerator/PriceExpected change in price = 81.7$13.934$14.1005.9061.11=--=+∆-P R R D . This implies a newprice of $941.94. The actual price using conventional bond price discounting would be $941.99. The difference of $0.05 is due to convexity, which was not considered in this solution.14. The duration of an 11-year, $1,000 Treasury bond paying a 10 percent semiannual couponand selling at par has been estimated at 6.9 years. a. What is the modified duration of the bond (Modified Duration = D/(1 + R))? MD = 6.9/(1 + .10/2) = 6.57 years b. What will be the estimated price change of the bond if market interest rates increase0.10 percent (10 basis points)? If rates decrease 0.20 percent (20 basis points)?Estimated change in price = -MD x ∆R x P = -6.57 x 0.001 x $1,000 = -$6.57. Estimated change in price = -MD x ∆R x P = -6.57 x -0.002 x $1,000 = $13.14. c. What would be the actual price of the bond under each rate change situation in part (b)using the traditional present value bond pricing techniques? What is the amount of error in each case?Rate Price Actual Change Estimated Price Error + 0.001 $993.43 $993.45 $0.02 - 0.002 $1,013.14 $1,013.28 -$0.1415. Suppose you purchase a five-year, 13.76 percent bond that is priced to yield 10 percent. a. Show that the duration of this annual payment bond is equal to four years.Five-year Bond Par value = $1,000 Coupon = 0.1376 Annual payments YTM = 0.10 Maturity = 5Time Cash Flow PVIF PV of CF PV*CF*T1 $137.60 0.909091 $125.09 $125.09 PVIF = 1/(1+YTM)^(Time)2 $137.60 0.826446 $113.72 $227.443 $137.60 0.751315 $103.38 $310.144 $137.60 0.683013 $93.98 $375.935 $1,137.60 0.620921 $706.36 $3,531.80Price = $1,142.53Numerator = $4,570.40 Duration = 4.0002 = Numerator/Priceb. Show that, if interest rates rise to 11 percent within the next year and that if yourinvestment horizon is four years from today, you will still earn a 10 percent yield onyour investment.Value of bond at end of year four: PV = ($137.60 + $1,000) ÷ 1.11 = $1,024.86.Future value of interest payments at end of year four: $137.60*FVIF n=4, i=11% = $648.06.Future value of all cash flows at n = 4:Coupon interest payments over four years $550.40Interest on interest at 11 percent 97.66Value of bond at end of year four $1,024.86Total future value of investment $1,672.92Yield on purchase of asset at $1,142.53 = $1,672.92*PVIV n=4, i=?% ⇒ i = 10.002332%.c. Show that a 10 percent yield also will be earned if interest rates fall next year to 9percent.Value of bond at end of year four: PV = ($137.60 + $1,000) ÷ 1.09 = $1,043.67.Future value of interest payments at end of year four: $137.60*FVIF n=4, i=9% = $629.26.Future value of all cash flows at n = 4:Coupon interest payments over four years $550.40Interest on interest at 9 percent 78.86Value of bond at end of year four $1,043.67Total future value of investment $1,672.93Yield on purchase of asset at $1,142.53 = $1,672.93*PVIV n=4, i=?% ⇒ i = 10.0025 percent. 16. Consider the case where an investor holds a bond for a period of time longer than theduration of the bond, that is, longer than the original investment horizon.a. If market interest rates rise, will the return that is earned exceed or fall short of theoriginal required rate of return? Explain.In this case the actual return earned would exceed the yield expected at the time ofpurchase. The benefits from a higher reinvestment rate would exceed the price reductioneffect if the investor holds the bond for a sufficient length of time.b. What will happen to the realized return if market interest rates decrease? Explain.If market rates decrease, the realized yield on the bond will be less than the expected yield because the decrease in reinvestment earnings will be greater than the gain in bond value.c. Recalculate parts (b) and (c) of problem 15 above, assuming that the bond is held for allfive years, to verify your answers to parts (a) and (b) of this problem.The case where interest rates rise to 11 percent, n = five years:Future value of interest payments at end of year five: $137.60*FVIF n=5, i=11% = $856.95.Future value of all cash flows at n = 5:Coupon interest payments over five years $688.00Interest on interest at 11 percent 168.95Value of bond at end of year five $1,000.00Total future value of investment $1,856.95Yield on purchase of asset at $1,142.53 = $1,856.95*PVIF n=5, i=?%The case where interest rates fall to 9 percent, n = five years:Future value of interest payments at end of year five: $137.60*FVIF n=5, i=9% = $823.50.Future value of all cash flows at n = 5:Coupon interest payments over five years $688.00Interest on interest at 9 percent 135.50Value of bond at end of year five $1,000.00Total future value of investment $1,823.50Yield on purchase of asset at $1,142.53 = $1,823.50*PVIV n=5, i=?% ⇒ i = 9.8013 percent.d. If either calculation in part (c) is greater than the original required rate of return, whywould an investor ever try to match the duration of an asset with his investment horizon?The answer has to do with the ability to forecast interest rates. Forecasting interest rates isa very difficult task, one that most financial institution money managers are unwilling to do.For most managers, betting that rates would rise to 11 percent to provide a realized yield of10.20 percent over five years is not a sufficient return to offset the possibility that ratescould fall to 9 percent and thus give a yield of only 9.8 percent over five years.17. Two banks are being examined by the regulators to determine the interest rate sensitivity oftheir balance sheets. Bank A has assets composed solely of a 10-year, 12 percent, $1million loan. The loan is financed with a 10-year, 10 percent, $1 million CD. Bank B has assets composed solely of a 7-year, 12 percent zero-coupon bond with a current (market) value of $894,006.20 and a maturity (principal) value of $1,976,362.88. The bond isfinanced with a 10-year, 8.275 percent coupon, $1,000,000 face value CD with a YTM of10 percent. The loan and the CDs pay interest annually, with principal due at maturity.a. If market interest rates increase 1 percent (100 basis points), how do the market valuesof the assets and liabilities of each bank change? That is, what will be the net affect onthe market value of the equity for each bank?For Bank A, an increase of 100 basis points in interest rate will cause the market values of assets and liabilities to decrease as follows:Loan: $120*PVIVA n=10,i=13% + $1,000*PVIV n=10,i=13% = $945,737.57.CD: $100*PVIVA n=10,i=11% + $1,000*PVIV n=10,i=11% = $941,107.68.Therefore, the decrease in value of the asset was $4,629.89 less than the liability.For Bank B:Bond: $1,976,362.88*PVIV n=7,i=13% = $840,074.08.CD: $82.75*PVIVA n=10,i=11% + $1,000*PVIV n=10,i=11% = $839,518.43.The bond value decreased $53,932.12, and the CD value fell $54,487.79. Therefore,the decrease in value of the asset was $555.67 less than the liability.b. What accounts for the differences in the changes of the market value of equity betweenthe two banks?The assets and liabilities of Bank A change in value by different amounts because thedurations of the assets and liabilities are not the same, even though the face values andmaturities are the same. For Bank B, the maturities of the assets and liabilities are different, but the current market values and durations are the same. Thus the change in interest rates causes the same (approximate) change in value for both liabilities and assets.c. Verify your results above by calculating the duration for the assets and liabilities ofeach bank, and estimate the changes in value for the expected change in interest rates.Summarize your results.Ten-year CD:Bank B (Calculation in millions)Par value = $1,000 Coupon = 0.08 Annual payments YTM = 0.10 Maturity = 10Time Cash Flow PVIF PV of CF PV*CF*T1 $82.75 0.909091 $75.23 $75.23 PVIF = 1/(1+YTM)^(Time)2 $82.75 0.826446 $68.39 $136.783 $82.75 0.751315 $62.17 $186.514 $82.75 0.683013 $56.52 $226.085 $82.75 0.620921 $51.38 $256.916 $82.75 0.564474 $46.71 $280.267 $82.75 0.513158 $42.46 $297.258 $82.75 0.466507 $38.60 $308.839 $82.75 0.424098 $35.09 $315.8510 $1,082.75 0.385543 $417.45 $4,174.47Price = $894.006Numerator = $6,258.15 Duration = 7.0001 = Numerator/PriceThe duration for the CD of Bank B is calculated above to be 7.001 years. Since the bond is a zero-coupon, the duration is equal to the maturity of 7 years.Using the duration formula to estimate the change in value:Bond: ∆Value = 39.875,55$20.006,894$12.101.0.71-=-=+∆-P R R DCD:∆Value = 43.899,56$22.006,894$10.101.0001.71-=-=+∆-P R R DThe difference in the change in value of the assets and liabilities for Bank B is $1,024.04using the duration estimation model. The small difference in this estimate and the estimate found in part a above is due to the convexity of the two financial assets.The duration estimates for the loan and CD for Bank A are presented below:Ten-year Loan: Bank A (Calculation in millions)Par value = $1,000 Coupon = 0.12 Annual payments YTM = 0.12 Maturity = 10Time Cash Flow PVIF PV of CF PV*CF*T 1 $120.00 0.892857 $107.14 $107.14 PVIF = 1/(1+YTM)^(Time) 2 $120.00 0.797194 $95.66 $191.33 3 $120.00 0.711780 $85.41 $256.24 4 $120.00 0.635518 $76.26 $305.05 5 $120.00 0.567427 $68.09 $340.46 6 $120.00 0.506631 $60.80 $364.77 7 $120.00 0.452349 $54.28 $379.97 8 $120.00 0.403883 $48.47 $387.73 9 $120.00 0.360610 $43.27 $389.46 10 $1,120.00 0.321973 $360.61 $3,606.10 Price = $1,000.00Numerator = $6,328.25 Duration = 6.3282 = Numerator/PriceTen-year CD: Bank A (Calculation in millions) Par value = $1,000 Coupon = 0.10 Annual payments YTM = 0.10 Maturity = 10 Time Cash Flow PVIF PV of CF PV*CF*T 1 $100.00 0.909091 $90.91 $90.91 PVIF = 1/(1+YTM)^(Time) 2 $100.00 0.826446 $82.64 $165.29 3 $100.00 0.751315 $75.13 $225.39 4 $100.00 0.683013 $68.30 $273.21 5 $100.00 0.620921 $62.09 $310.46。

公司财务原理Principles of Corporate Finance(11th edition)_课后习题答案Chap003

公司财务原理Principles of Corporate Finance(11th edition)_课后习题答案Chap003

CHAPTER 3Valuing BondsAnswers to Problem Sets1. a. Does not change. The coupon rate is set at time of issuance.b. Price falls. Market yields and prices are inversely related.c. Yield rises. Market yields and prices are inversely related.Est. Time: 01-052. a. If the coupon rate is higher than the yield, then investors must beexpecting a decline in the capital value of the bond over its remaining life.Thus, the bond’s price must be greater than its face value.b. Conversely, if the yield is greater than the coupon, the price will be belowface value and it will rise over the remaining life of the bond.Est. Time: 01-053. The yield over six months is 2.7/2 = 1.35%.The six-month coupon payment is $6.25/2 = $3.125.There are 18 years between today (2012) and 2030; since coupon payments are listed every six months, there will be 36 payment periods.Therefore, PV = $3.125 / 1.0135 + $3.125 / (1.0135)2 + . . . $103.125 / (1.0135)36 = $150.35.Est. Time: 01-054. Yields to maturity are about 4.3% for the 2% coupon, 4.2% for the 4% coupon,and 3.9% for the 8% coupon. The 8% bond had the shortest duration (7.65years), the 2% bond the longest (9.07 years).The 4% bond had a duration of 8.42 years.Est. Time: 01-055. a. Fall. Example: Assume a one-year, 10% bond. If the interest rate is 10%,the bond is worth $110/1.1 = $100. If the interest rate rises to 15%, the bond isworth $110/1.15 = $95.65.b. Less (e.g., see 5a —if the bond yield is 15% but the coupon rate is lower at 10%, the price of the bond is less than $100).c.Less (e.g., with r = 5%, one-year 10% bond is worth $110/1.05 = $104.76).d. Higher (e.g., if r = 10%, one-year 10% bond is worth $110/1.1 = $100, while one-year 8% bond is worth $108/1.1 = $98.18).e.No. Low-coupon bonds have longer durations (unless there is only one period to maturity) and are therefore more volatile (e.g., if r falls from 10% to 5%, the value of a two-year 10% bond rises from $100 to $109.3 (a rise of 9.3%). The value of a two-year 5% bond rises from $91.3 to $100 (a rise of 9.5%).Est. Time: 01-056. a. Spot interest rates. Yield to maturity is a complicated average of theseparate spot rates of interest.b. Bond prices. The bond price i s determined by the bond’s cash flows andthe spot rates of interest. Once you know the bond price and the bond’s cash flows, it is possible to calculate the yield to maturity.Est. Time: 01-057. a. 4%; each bond will have the same yield to maturity.b.PV = $80/(1.04) + $1,080/(1.04)2 = $1,075.44.Est. Time: 01-058. a. PV ()221110515r r +++=b.PV ()2110515y y +++=c. Less (it is between the one-year and two-year spot rates). Est. Time: 01-059. a. The two-year spot rate is r 2 = (100/99.523).5 – 1 = 0.24%.The three-year spot rate is r 3 = (100/98.937).33 – 1 = 0.36%. The four-year spot rate is r 4 = (100/97.904).25 – 1 = 0.53%. The five-year spot rate is r 5 = (100/96.034).2 – 1 = 0.81%.b. Upward-sloping.c. Higher (the yield on the bond is a complicated average of the separatespot rates).Est. Time: 01-0510. a. Price today is $108.425; price after one year is $106.930.b. Return = (8 + 106.930)/108.425 - 1 = .06, or 6%.c. If a bond’s yie ld to maturity is unchanged, the return to the bondholder isequal to the yield.Est. Time: 01-0511. a. False. Duration depends on the coupon as well as the maturity.b. False. Given the yield to maturity, volatility is proportional to duration.c. True. A lower coupon rate means longer duration and therefore highervolatility.d. False. A higher interest rate reduces the relative present value of (distant)principal repayments.Est. Time: 01-0512.Est. Time: 06-1013. 7.01%; the extra return that you earn for investing for two years rather than oneyear is 1.062/1.05 – 1 = .0701.Est. Time: 01-0514. a. Real rate = 1.10/1.05 – 1 = .0476, or 4.76%.b. The real rate does not change. The nominal rate increases to 1.0476 ×1.07 – 1 = .1209, or 12.09%.Est. Time: 01-0515. With annual coupon payments:=+⎥⎦⎤⎢⎣⎡⨯-⨯=1010(1.06)100(1.06)0.0610.0615PV €92.64 Est. Time: 01-0516. a. $10,231.64(1.026)10,000(1.026)0.02610.0261275PV 2020=+⎥⎦⎤⎢⎣⎡⨯-⨯=b.Interest Rate PV of Interest PV ofFace Value PV of Bond1.0% $5,221.54 $9,050.63 $14,272.17 2.0% 4,962.53 8,195.44 13,157.973.0% 4,721.38 7,424.70 12,146.08 4.0% 4,496.64 6,729.71 11,226.365.0% 4,287.02 6,102.71 10,389.736.0% 4,091.31 5,536.76 9,628.067.0% 3,908.41 5,025.66 8,934.07 8.0% 3,737.34 4,563.87 8,301.219.0% 3,577.18 4,146.43 7,723.61 10.0% 3,427.11 3,768.89 7,196.00 11.0% 3,286.36 3,427.29 6,713.64 12.0% 3,154.23 3,118.05 6,272.28 13.0% 3,030.09 2,837.97 5,868.06 14.0% 2,913.35 2,584.19 5,497.54 15.0% 2,803.49 2,354.13 5,157.62Est. Time: 06-1017.Purchase price for a six-year government bond with 5% annual coupon:1,108.34(1.03)1,000(1.03)0.0310.03150PV 66$=+⎥⎦⎤⎢⎣⎡⨯-⨯= The price one year later is equal to the present value of the remaining five years of the bond:1,091.59(1.03)1,000(1.03)0.0310.03150PV 55$=+⎥⎦⎤⎢⎣⎡⨯-⨯= Rate of return = [$50 + ($1,091.59 – $1,108.34)]/$1,108.34 = 3.00% Price one year later (yield = 2%):1,141.40(1.02)1,000(1.02)0.0210.02150PV 55$=+⎥⎦⎤⎢⎣⎡⨯-⨯=Rate of return = [$50 + ($1,141.40 – $1,108.34)]/$1,108.34 = 7.49%.Est. Time: 06-1018. The key here is to find a combination of these two bonds (i.e., a portfolio ofbonds) that has a cash flow only at t = 6. Then, knowing the price of the portfolio and the cash flow at t = 6, we can calculate the six-year spot rate. We begin byspecifying the cash flows of each bond and using these and their yields tocalculate their current prices:Investment Yield C1. . . C5C6Price6% bond 12% 60 . . . 60 1,060 $753.3210% bond 8% 100 . . . 100 1,100 $1,092.46 From the cash flows in years 1 through 5, we can see that buying two 6% bonds produces the same annual payments as buying 1.2 of the 10% bonds. To seethe value of a cash flow only in year 6, consider the portfolio of two 6% bondsminus 1.2 10% bonds. This portfolio costs:($753.32 × 2) – (1.2 ⨯ $1,092.46) = $195.68The cash flow for this portfolio is equal to zero for years 1 through 5 and, for year 6, is equal to:(1,060 × 2) – (1.2 ⨯ 1,100) = $800Thus:$195.68 ⨯ (1 + r6)6 = $800r6 = 0.2645 = 26.45%Est. Time: 06-1019. Downward sloping. This is because high-coupon bonds provide a greaterproportion of their cash flows in the early years. In essence, a high-coupon bond is a ―shorter‖ bond than a low-coupon bond of the same maturity.Est. Time: 01-0520. a.Year Discount Factor Forward Rate1 1/1.05 = 0.9522 1/(1.054)2 = 0.900 (1.0542 /1.05) – 1 = 0.0580 = 5.80%3 1/(1.057)3 = 0.847 (1.0573 /1.0542 ) – 1 = 0.0630 = 6.30%4 1/(1.059)4 = 0.795 (1.0594 /1.0573 ) – 1 = 0.0650 = 6.50%5 1/(1.060)5 = 0.747 (1.0605 /1.0594 ) – 1 = 0.0640 = 6.40%b. i. 5%, two-year bond:$992.79(1.054)10501.0550PV 2=+=ii. 5%, five-year bond:$959.34(1.060)1,050(1.059)50(1.057)50(1.054)501.0550PV 5432=++++=iii. 10%, five-year bond:$1,171.43(1.060)1,100(1.059)100(1.057)100(1.054)1001.05100PV 5432=++++=c. First, we calculate the yield for each of the two bonds. For the 5% bond, this means solving for r in the following equation:5432r)(11,050r)(150)(150)(150150$959.34+++++++++=r r r r = 0.05964 = 5.964%For the 10% bond:5432r)(11,100r)(1100r)(1100r)(1100r 1100$1,171.43+++++++++=r = 0.05937 = 5.937%The yield depends upon both the coupon payment and the spot rate at the time of the coupon payment. The 10% bond has a slightly greater proportion of its total payments coming earlier, when interest rates are low, than does the 5% bond. Thus, the yield of the 10% bond is slightly lower.d. The yield to maturity on a five-year zero-coupon bond is the five-year spot rate, here 6.00%.e. First, we find the price of the five-year annuity, assuming that the annual payment is $1:Now we find the yield to maturity for this annuity:r = 0.05745 = 5.745%$4.2417(1.060)1.059)(11.057)(11.054)(111.051P V 5432=++++=5432r)(11r)(11r)(11r)(11r 11$4.2417+++++++++=f. The yield on the five-year note lies between the yield on a five-year zero-coupon bond and the yield on a five-year annuity because the cash flowsof the Treasury bond lie between the cash flows of these other twofinancial instruments during a period of rising interest rates. That is, theannuity has fixed, equal payments; the zero-coupon bond has onepayment at the end; and the bond’s payments are a combination of these. Est. Time: 06-1021. To calculate the duration, consider the following table similar to Table 3.4:The duration is the sum of the year × fraction of total value column, or 6.395 years.The modified duration, or volatility, is 6.395/(1 + .04) = 6.15.The price of the 3% coupon bond at 3.5%, and 4.5% equals $969.43 and $911.64, respectively. This price difference ($57.82) is 5.93% of the original price, which is very close to the modified duration.Est. Time: 06-1022.a. If the bond coupon payment changes from 9% as listed in Table 3.4 to 8%,then the following calculation for duration can be made:A decrease in the coupon payment will increase the duration of the bond, as theduration at an 8% coupon payment is 5.778 years.The volatility for the bond in Table 3.4 with an 8% coupon payment is:5.778/(1.04) = 5.556.The bond therefore becomes less volatile if the couponpayment decreases.b. For a 9% bond whose yield increases from 4% to 6%, the duration can becalculated as follows:There is an inverse relationship between the yield to maturity and the duration.When the yield goes up from 4% to 6%, the duration decreases slightly. Thevolatility can be calculated as follows: 5.595/(1.06) = 5.278. This shows that the volatility decreases as well when the yield increases.Est. Time: 06-1023. The duration of a perpetual bond is: [(1 + yield)/yield].The duration of a perpetual bond with a yield of 5% is:D5 = 1.05/0.05 = 21 yearsThe duration of a perpetual bond yielding 10% is:D10 = 1.10/0.10 = 11 yearsBecause the duration of a zero-coupon bond is equal to its maturity, the 15-year zero-coupon bond has a duration of 15 years.Thus, comparing the 5% perpetual bond and the zero-coupon bond, the 5%perpetual bond has the longer duration. Comparing the 10% perpetual bond and the 15-year zero, the zero has a longer duration.Est. Time: 06-1024. Answers will differ. Generally, we would expect yield changes to have thegreatest impact on long-maturity and low-coupon bonds.Est. Time: 06-1025. The new calculations are shown in the table below:26. We will borrow $1,000 at a five-year loan rate of 2.5% and buy a four-year strippaying 4%. We may not know what interest rates we will earn on the last year(4 5), but our $1,000 will come due, and we put it under our mattress earning0% if necessary to pay off the loan.Let’s turn to present value calculations: As shown above, the cost of the strip is$854.80. We will receive proceeds from the 2.5% loan = $1,000/(1.025)5 =$883.90. Pocket the difference of $29.10, smile, and repeat.The minimum sensible value would set the discount factors used in year 5 equal to that of year 4, which would assume a 0% interest rate from year 4 to 5. Wecan solve for the interest rate where 1/(1 + r)5 = 0.8548, which is roughly 3.19%. Est. Time: 06-1027.a. If the expectations theory of term structure is right, then we can determinethe expected future one-year spot rate (at t = 3) as follows: investing $100in a three-year instrument at 4.2% gives us $100(1 + .042)3 = 113.136.Investing $100 in a four-year instrument at 4.0% gives us $100 × (1+.04)4= 116.986. This reveals a one-year spot rate from year 3 to 4 of ($116.98– 113.136)/113.136 = 3.4%.b. If investing in long-term bonds carries additional risks, then the riskequivalent of a one-year spot rate in year 3 would be even less (reflectingthe fact that some risk premium must be built into this 3.4% spot rate).Est. Time: 06-1028.a. Your nominal return will be 1.082 -1 = 16.64% over the two years. Yourreal return is (1.08/1.03) × (1.08/1.05) - 1 = 7.85%.b. With the TIPS, the real return will remain at 8% per year, or 16.64% overtwo years. The nominal return on the TIPS will equal (1.08 × 1.03) × (1.08× 1.05) – 1 = 26.15%.Est. Time: 01-0529. The bond price at a 5.3% yield is:1,201.81(1.053)1,000(1.053)0.05310.0531100PV 55$=+⎥⎦⎤⎢⎣⎡⨯-⨯= If the yield decreases to 5.9%, the price would rise to:1,173.18(1.059)1,000(1.059)0.05910.0591100PV 55$=+⎥⎦⎤⎢⎣⎡⨯-⨯=30. Answers will vary by the interest rates chosen.a. Suppose the YTM on a four-year 3% coupon bond is 2%. The bond is selling for:08.038,1$3=+⎥⎦⎤⎢⎣⎡⨯-⨯=44(1.02)1,000(1.02)0.0210.0210PVIf the YTM stays the same, one year later the bond will sell for:84.028,1$3=+⎥⎦⎤⎢⎣⎡⨯-⨯=33(1.02)1,000(1.02)0.0210.0210PVThe return over the year is [$30 + (1,028.84 - 1,038.08)]/$1,038.08= 0.02, or 2%.b. Suppose the YTM on a four-year 3% coupon bond is 4%. The bond is sellingfor:70.963$3=+⎥⎦⎤⎢⎣⎡⨯-⨯=44(1.04)1,000(1.04)0.0410.0410PV If the YTM stays the same, one year later the bond will sell for:25.972$3=+⎥⎦⎤⎢⎣⎡⨯-⨯=33(1.04)1,000(1.04)0.0410.0410PVThe return over the year is [$30+(972.25-963.70)]/$963.70 = 0.04, or 4%.Est. Time: 06-1031. Spreadsheet problem; answers will vary.Est. Time: 06-1032. Arbitrage opportunities can be identified by finding situations where the impliedforward rates or spot rates are different.We begin with the shortest-term bond, Bond G, which has a two-year maturity.Since G is a zero-coupon bond, we determine the two-year spot rate directly by finding the yield for Bond G. The yield is 9.5%, so the implied two-year spot rate (r 2) is 9.5%. Using the same approach for Bond A, we find that the three-yearspot rate (r 3) is 10.0%.Next we use Bonds B and D to find the four-year spot rate. The followingposition in these bonds provides a cash payoff only in year four: a long position in two of Bond B and a short position in Bond D.Cash flows for this position are:[(–2 ⨯ $842.30) + $980.57] = –$704.03 today[(2 ⨯ $50) – $100] = $0 in years 1, 2 and 3[(2 ⨯ $1,050) – $1,100] = $1,000 in year 4 We determine the four-year spot rate from this position as follows:4)4r (1$1,000$704.03+= r 4 = 0.0917 = 9.17%Next, we use r 2, r 3, and r 4 with one of the four-year coupon bonds to determine r 1. For Bond C:978.74r 1120(1.0917)1,120(1.100)120(1.095)120r 1120$1,065.2814321++=++++= r 1 = 0.3867 = 38.67%Now, in order to determine whether arbitrage opportunities exist, we use thesespot rates to value the remaining two four-year bonds. This produces thefollowing results: for Bond B, the present value is $854.55, and for Bond D, thepresent value is $1,005.07. Since neither of these values equals the currentmarket price of the respective bonds, arbitrage opportunities exist. Similarly, the spot rates derived above produce the following values for the three-year bonds: $1,074.22 for Bond E and $912.77 for Bond F.Est. Time: 11-1533. We begin with the definition of duration as applied to a bond with yield r and anannual payment of C in perpetuity:We first simplify by dividing both the numerator and the denominator by C :The denominator is the present value of a perpetuity of $1 per year, which isequal to (1/r ). To simplify the numerator, we first denote the numerator S andthen divide S by (1 + r ):Note that this new quantity [S /(1 + r )] is equal to the square of denominator in the duration formula above, that is:Therefore:Thus, for a perpetual bond paying C dollars per year:++++++++++++++++++=t 32t 32r)(1C r)(1C r)(1C r 1C r)(1tC r)(13C r)(12C r 11C DUR ++++++++++++++++++=t32t 32r)(11r)(11r)(11r 11r)(1t r)(13r)(12r)(11DUR+++++++++=++1t 432r)(1t r)(13r)(12r)(11r)(1S 2t 32r)(11r)(11r)(11r 11r)(1S ⎪⎪⎭⎫ ⎝⎛+++++++++=+ 22r r 1S r 1r)(1S +=⇒⎪⎭⎫ ⎝⎛=+rr 1r)/(11r r 1DUR 2+=⨯+=Est. Time: 06-1034. We begin with the definition of duration as applied to a common stock with yield rand dividends that grow at a constant rate g in perpetuity:We first simplify by dividing each term by [C (1 + g )]:The denominator is the present value of a growing perpetuity of $1 per year,which is equal to [1/(r - g )]. To simplify the numerator, we first denote thenumerator S and then divide S by (1 + r ):Note that this new quantity [S/(1 + r )] is equal to the square of denominator in the duration formula above, that is:Therefore:Thus, for a perpetual bond paying C dollars per year:Est. Time: 11-15++++++++++++++++++++++++++=t t 3322t t 3322r)(1g)C(1r)(1g)C(1r)(1g)C(1r 1g)C(1r)(1g)tC(1r)(1g)3C(1r)(1g)2C(1r 1g)1C(1DUR ++++++++++++++++++++++++=--t1t 322t 1t 322r)(1g)(1r)(1g)(1r)(1g 1r 11r)(1g)t(1r)(1g)3(1r)(1g)2(1r 11DUR ++++++++++++=++-1t 2t 4232r)(1g)t(1r)(1g)3(1r)(1g)2(1r)(11 r)(1S 2t 1t 322r)(1g)(1r)(1g)(1r)(1g 1r 11r)(1S ⎪⎪⎭⎫ ⎝⎛++++++++++++=+- 22g)(r r 1S g r 1r)(1S -+=⇒⎪⎪⎭⎫ ⎝⎛-=+g r r 1g)](r /[11g)(r r 1DUR 2-+=-⨯-+=35. a. We make use of the one-year Treasury bill information in order to determine the one-year spot rate as follows:1r 1$100$93.46+= r 1 = 0.0700 = 7.00%The following position provides a cash payoff only in year two: a longposition in 25 two-year bonds and a short position in 1 one-year Treasurybill. Cash flows for this position are:[(–25 ⨯ $94.92) + (1 ⨯ $93.46)] = –$2,279.54 today[(25 ⨯ $4) – (1 ⨯ $100)] = $0 in year 1(25 ⨯ $104) = $2,600 in year 2 We determine the two-year spot rate from this position as follows:2)2r (1$2,600$2,279.54+= r 2 = 0.0680 = 6.80%The forward rate f 2 is computed as follows:f 2 = [(1.0680)2/1.0700] – 1 = 0.0660 = 6.60%The following position provides a cash payoff only in year 3:a long position in the three-year bond and a short position equal to (8/104)times a package consisting of a one-year Treasury bill and a two-yearbond.Cash flows for this position are:[(–1 ⨯ $103.64) + (8/104) ⨯ ($93.46 + $94.92)] = –$89.15 today[(1 ⨯ $8) – (8/104) ⨯ ($100 + $4)] = $0 in year 1[(1 ⨯ $8) – (8/104) ⨯ $104] = $0 in year 21 ⨯ $108 = $108 in year 3 We determine the three-year spot rate from this position as follows:3)3r (1$108$89.15+= r 3 = 0.0660 = 6.60%The forward rate f 3 is computed as follows:f 3 = [(1.0660)3/(1.0680)2] – 1 = 0.0620 = 6.20%b.We make use of the spot and forward rates to calculate the price of the 4% coupon bond:The actual price of the bond ($950) is significantly greater than the pricededuced using the spot and forward rates embedded in the prices of theother bonds ($931.01). Hence, a profit opportunity exists. In order to takeadvantage of this opportunity, one should sell the 4% coupon bond shortand purchase the 8% coupon bond.Est. Time: 11-1536. a. We can set up the following three equations using the prices of bonds A, B,and C:Using bond A: $1,076.19 = $80/(1+r 1) + $1,080/(1+r 2)2Using bond B: $1,084.58 = $80/(1+r 1) + $80/(1+r 2)2 + $1,080 / (1+r 3)3Using bond C: $1,076.20 = $80/(1+r 1) + $80/(1+r 2)2 + $80/(1+r 3)3 + $1,080/(1+r 4)4 We know r 4 = 6% so we can substitute that into the last equation. Now wehave three equations and three unknowns and can solve this with variablesubstitution or linear programming to get r 1 = 3%, r 2 = 4%; r 3 = 5%, r 4 = 6%.b.We will want to invest in the underpriced C and borrow money at thecurrent spot market rates to construct an offsetting position. For example,we might borrow $80 at the one-year rate of 3%, $80 at the two-year rateof 4%, $80 at the three-year rate of 5%, and $1,080 at the four-year rate of6%. Of course the PV amount we will receive on these loans is $1,076.20.Now we purchase the discounted bond C at $1,040 and use the proceedsof this bond to repay our loans as they come due. We can pocket thedifference of $36.20, smile, and repeat. Est. Time: 11-15$931.01(1.062)(1.066)(1.07)1040(1.066)(1.07)40(1.07)40P =++=。

投资学第10版课后习题答案chap003

投资学第10版课后习题答案chap003

CHAPTER 3: HOW SECURITIES ARE TRADEDPROBLEM SETS1.Stop-loss order: allows a stock to be sold if the price falls below a predeterminedlevel. Stop-loss orders often accompany short sales. Limit sell order: sells stockwhen the price rises above a predetermined level. Market order: either a buy or sellorder that is executed immediately at the current market price2. In response to the potential negative reaction to large [block] trades, trades will be splitup into many small trades, effectively hiding the total number of shares bought or sold.3. The use of leverage necessarily magnifies returns to investors. Leveragingborrowed money allows for greater return on investment if the stock price increases.However, if the stock price declines, the investor must repay the loan, regardless ofhow far the stock price drops, and incur a negative rate of return. For example, if aninvestor buys an asset at $100 and the price rises to $110, the investor earns 10%.If an investor takes out a $40 loan at 5% and buys the same stock, the return will be13.3%, computed as follows: $10 capital gain minus $2 interest expense divided bythe $60 original investment. Of course, if the stock price falls below $100, thenegative return will be greater for the leveraged account.4. (a) A market order is an order to execute the trade immediately at the bestpossible price. The emphasis in a market order is the speed of execution (thereduction of execution uncertainty). The disadvantage of a market order is thatthe price at which it will be executed is not known ahead of time; it thus hasprice uncertainty.5. (a) A broker market consists of intermediaries who have the discretion to tradefor their clients. A large block trade in an illiquid security would most likelytrade in this market as the brokers would have the best access to clientsinterested in this type of security.The advantage of an electronic communication network (ECN) is that it canexecute large block orders without affecting the public quote. Since thissecurity is illiquid, large block orders are less likely to occur and thus it wouldnot likely trade through an ECN.Electronic limit-order markets (ELOM) transact securities with high tradingvolume. This illiquid security is unlikely to be traded on an ELOM.6. a. The stock is purchased for: 300 ⨯ $40 = $12,000The amount borrowed is $4,000. Therefore, the investor put up equity, ormargin, of $8,000.b.If the share price falls to $30, then the value of the stock falls to $9,000. Bythe end of the year, the amount of the loan owed to the broker grows to:$4,000 ⨯ 1.08 = $4,320Therefore, the remaining margin in the investor’s account is:$9,000 - $4,320 = $4,680The percentage margin is now: $4,680/$9,000 = 0.52, or 52%Therefore, the investor will not receive a margin call.c.The rate of return on the investment over the year is:(Ending equity in the account - Initial equity)/Initial equity= ($4,680 - $8,000)/$8,000 = -0.415, or -41.5%Alternatively, divide the initial equity investments into the change in valueplus the interest payment:($3,000 loss + $320 interest)/$8,000 = -0.415.7. a. The initial margin was: 0.50 ⨯ 1,000 ⨯ $40 = $20,000As a result of the increase in the stock price Old Economy Traders loses: $10 ⨯ 1,000 = $10,000Therefore, margin decreases by $10,000. Moreover, Old Economy Tradersmust pay the dividend of $2 per share to the lender of the shares, so that themargin in the account decreases by an additional $2,000. Therefore, theremaining margin is:$20,000 – $10,000 – $2,000 = $8,000b. The percentage margin is: $8,000/$50,000 = 0.16, or 16%So there will be a margin call.c. The equity in the account decreased from $20,000 to $8,000 in one year, for arate of return of: (-$12,000/$20,000) = -0.60, or -60%8.a. The buy order will be filled at the best limit-sell order price: $50.25b.The next market buy order will be filled at the next-best limit-sell order price: $51.50 c. You would want to increase your inventory. There is considerable buyingdemand at prices just below $50, indicating that downside risk is limited. Incontrast, limit sell orders are sparse, indicating that a moderate buy order could result in a substantial price increase.9. a.You buy 200 shares of Telecom for $10,000. These shares increase in value by 10%, or $1,000. You pay interest of: 0.08 ⨯ $5,000 = $400The rate of return will be: $1,000$4000.1212%$5,000-==b. The value of the 200 shares is 200P . Equity is (200P – $5,000). You will receive a margin call when:PP 200000,5$200-= 0.30 ⇒ when P = $35.71 or lower10. a.Initial margin is 50% of $5,000, or $2,500.b. Total assets are $7,500 ($5,000 from the sale of the stock and $2,500 put up formargin). Liabilities are 100P . Therefore, equity is ($7,500 – 100P ). A margin call will be issued when:PP 100100500,7$-= 0.30 ⇒ when P = $57.69 or higher11. The total cost of the purchase is: $20 ⨯ 1,000 = $20,000You borrow $5,000 from your broker and invest $15,000 of your own funds.Your margin account starts out with equity of $15,000.a. (i) Equity increases to: ($22 ⨯ 1,000) – $5,000 = $17,000Percentage gain = $2,000/$15,000 = 0.1333, or 13.33%(ii) With price unchanged, equity is unchanged.Percentage gain = zero(iii) Equity falls to ($18 ⨯ 1,000) – $5,000 = $13,000Percentage gain = (–$2,000/$15,000) = –0.1333, or –13.33%The relationship between the percentage return and the percentage change inthe price of the stock is given by:% return = % change in price ⨯ equityinitial s Investor'investment T otal = % change in price ⨯ 1.333 For example, when the stock price rises from $20 to $22, the percentage change in price is 10%, while the percentage gain for the investor is:% return = 10% ⨯000,15$000,20$= 13.33%b. The value of the 1,000 shares is 1,000P . Equity is (1,000P – $5,000). You will receive a margin call when:P P 000,1000,5$000,1-= 0.25 ⇒ when P = $6.67 or lowerc. The value of the 1,000 shares is 1,000P . But now you have borrowed $10,000instead of $5,000. Therefore, equity is (1,000P – $10,000). You will receive a margin call when:PP 000,1000,10$000,1-= 0.25 ⇒ when P = $13.33 or lower With less equity in the account, you are far more vulnerable to a margin call.d. By the end of the year, the amount of the loan owed to the broker grows to:$5,000 ⨯ 1.08 = $5,400The equity in your account is (1,000P – $5,400). Initial equity was $15,000.Therefore, your rate of return after one year is as follows: (i)000,15$000,15$400,5$)22$000,1(--⨯= 0.1067, or 10.67% (ii)000,15$000,15$400,5$)20$000,1(--⨯= –0.0267, or –2.67% (iii)000,15$000,15$400,5$)18$000,1(--⨯= –0.1600, or –16.00% The relationship between the percentage return and the percentage change inthe price of Intel is given by: % return = ⎪⎪⎭⎫ ⎝⎛⨯equity initial s Investor'investment Total price in change %⎪⎪⎭⎫ ⎝⎛⨯-equity initial s Investor'borrowed Funds %8For example, when the stock price rises from $40 to $44, the percentage change in price is 10%, while the percentage gain for the investor is:⎪⎭⎫ ⎝⎛⨯000,15$000,20$%10⎪⎭⎫ ⎝⎛⨯-000,15$000,5$%8=10.67%e. The value of the 1000 shares is 1,000P . Equity is (1,000P – $5,400). You will receive a margin call when:PP 000,1400,5$000,1-= 0.25 ⇒ when P = $7.20 or lower12. a. The gain or loss on the short position is: (–1,000 ⨯ ΔP )Invested funds = $15,000Therefore: rate of return = (–1,000 ⨯ ΔP )/15,000The rate of return in each of the three scenarios is:(i) Rate of return = (–1,000 ⨯ $2)/$15,000 = –0.1333, or –13.33%(ii) Rate of return = (–1,000 ⨯ $0)/$15,000 = 0%(iii) Rate of return = [–1,000 ⨯ (–$2)]/$15,000 = +0.1333, or+13.33%b. Total assets in the margin account equal:$20,000 (from the sale of the stock) + $15,000 (the initial margin) = $35,000Liabilities are 500P . You will receive a margin call when:PP 000,1000,1000,35$-= 0.25 ⇒ when P = $28 or higherc. With a $1 dividend, the short position must now pay on the borrowed shares:($1/share ⨯ 1000 shares) = $1000. Rate of return is now:[(–1,000 ⨯ ΔP ) – 1,000]/15,000(i) Rate of return = [(–1,000 ⨯ $2) – $1,000]/$15,000 = –0.2000, or –20.00%(ii) Rate of return = [(–1,000 ⨯ $0) – $1,000]/$15,000 = –0.0667, or –6.67% (iii) Rate of return = [(–1,000) ⨯ (–$2) – $1,000]/$15,000 = +0.067, or+6.67%Total assets are $35,000, and liabilities are (1,000P + 1,000). A margin call will be issued when:PP 000,1000,1000,1000,35--= 0.25 ⇒ when P = $27.2 or higher13. The broker is instructed to attempt to sell your Marriott stock as soon as theMarriott stock trades at a bid price of $40 or less. Here, the broker will attempt to execute but may not be able to sell at $40, since the bid price is now $39.95. The price at which you sell may be more or less than $40 because the stop-loss becomes a market order to sell at current market prices.14. a. $55.50b. $55.25c. The trade will not be executed because the bid price is lower than the pricespecified in the limit-sell order.d. The trade will not be executed because the asked price is greater than the pricespecified in the limit-buy order.15. a. You will not receive a margin call. You borrowed $20,000 and with another$20,000 of your own equity you bought 1,000 shares of Disney at $40 pershare. At $35 per share, the market value of the stock is $35,000, your equityis $15,000, and the percentage margin is: $15,000/$35,000 = 42.9%Your percentage margin exceeds the required maintenance margin.b. You will receive a margin call when:PP 000,1000,20$000,1-= 0.35 ⇒ when P = $30.77 or lower16. The proceeds from the short sale (net of commission) were: ($21 ⨯ 100) – $50 = $2,050A dividend payment of $200 was withdrawn from the account.Covering the short sale at $15 per share costs (with commission): $1,500 + $50 = $1,550Therefore, the value of your account is equal to the net profit on the transaction:$2,050 – $200 – $1,550 = $300Note that your profit ($300) equals (100 shares ⨯ profit per share of $3). Your net proceeds per share were:$21selling price of stock –$15 repurchase price of stock–$ 2 dividend per share–$ 1 2 trades $0.50 commission per share$ 3CFA PROBLEMS1. a. In addition to the explicit fees of $70,000, FBN appears to have paid animplicit price in underpricing of the IPO. The underpricing is $3 per share, ora total of $300,000, implying total costs of $370,000.b. No. The underwriters do not capture the part of the costs correspondingto the underpricing. The underpricing may be a rational marketingstrategy. Without it, the underwriters would need to spend more resourcesin order to place the issue with the public. The underwriters would thenneed to charge higher explicit fees to the issuing firm. The issuing firmmay be just as well off paying the implicit issuance cost represented bythe underpricing.2. (d) The broker will sell, at current market price, after the first transaction at$55 or less.3. (d)。

金融学金融机构习题与答案

金融学金融机构习题与答案

金融学金融机构习题与答案金融学是研究货币、金融市场和金融机构以及它们之间相互关系的学科。

而金融机构是指由资金融通、金融服务和金融中介等职能的组织所构成的金融系统。

本文将为大家提供金融学金融机构相关的习题与答案。

通过解答这些习题,相信能够帮助大家更好地理解金融机构的运作与特点。

一、选择题:选择题部分,请从每题四个选项中选择一个最符合题意的答案。

1.下列哪个不是金融机构的特点?A) 资金融通B) 金融服务C) 金融市场D) 金融中介答案:C) 金融市场解析:金融市场本身不属于金融机构,而是金融机构运作的场所。

2.下列哪个不是金融机构的功能?A) 存款储蓄B) 贷款融资C) 金融中介D) 汇率调控答案:D) 汇率调控解析:汇率调控属于货币政策的范畴,并非金融机构的职能。

3.下列哪个属于非银行金融机构?A) 商业银行B) 证券公司C) 农村信用社D) 央行答案:B) 证券公司解析:证券公司是一种非银行金融机构,主要从事证券经纪、承销与受托管理等业务。

4.下面哪个属于中央银行职能?A) 存款储蓄B) 贷款融资C) 储备汇款D) 股票交易答案:C) 储备汇款解析:中央银行主要负责储备外汇、管理货币政策以及维护金融稳定等职能。

二、简答题:简答题部分,请简要回答以下问题。

1. 请简述金融机构的资金融通功能。

答案:金融机构的资金融通功能是指通过接受存款和发放贷款等方式,将资金从资金供给方转移至需求方的过程。

金融机构作为金融市场与金融服务的中介,能够将大量资金汇集起来,并将其投放至需要融资的个人、企业和政府等机构。

通过资金融通,金融机构实现了资金的流动和配置,促进了经济发展。

2. 请简述商业银行的角色与职能。

答案:商业银行是金融机构中最具规模和代表性的机构之一。

其角色与职能主要包括:接受存款和储蓄,提供贷款和信贷融资服务;开展支付结算业务,维护金融系统的稳定;从事国际结算,促进国际贸易与投资;开展金融中介业务,提供金融产品与金融咨询;参与金融市场交易,提供金融产品的发行与承销等。

《金融管理》课程作业-003参考答案

《金融管理》课程作业-003参考答案

《金融管理》课程作业-003参考答案金融管理课程作业-003参考答案
1. 金融风险是指什么?
金融风险是指金融机构或市场在运作过程中,由于外部环境变化、内在不确定性等各种因素所带来的不确定性和潜在的经济损失。

2. 金融市场有哪些类型?
金融市场分为货币市场和资本市场两类。

货币市场是指短期债
务工具和货币市场基金等的买卖市场,主要用于短期融资和短期投资,交易对象是大型金融机构。

资本市场则是指大型企业股权和债
券的买卖市场,用于长期融资和长期投资,交易对象是一般投资者
和机构投资者。

3. 金融证券化的含义是什么?
金融证券化是指通过对金融资产进行排序、剪切、重组与包装
等操作,产生具有不同风险等级、收益水平、流动性和期限结构的
证券资产,再由投资者通过市场交易在次级市场上进行买卖,实现
对金融资产的分散持有与风险转移的过程。

4. 风险规避的方法有哪些?
风险规避的方法包括多元化投资、套期保值、保险、远期合同
和期权等。

5. 什么是金融监管?
金融监管指的是负责制定和实施金融市场准入、金融机构监管、金融产品标准、金融信息披露以及金融市场调控和风险防范等政策
制度,保证金融市场稳定运作和金融体系安全的政府部门。

以上是对《金融管理》课程作业-003的参考答案。

金融学金融机构习题与答案

金融学金融机构习题与答案

金融学金融机构习题与答案一、选择题1、以下不属于金融机构的是()A 商业银行B 证券公司C 财务公司D 工商企业答案:D解析:工商企业主要从事生产经营活动,不是专门从事金融业务的机构。

商业银行、证券公司和财务公司都是以金融业务为核心的机构。

2、金融机构的核心功能是()A 风险管理B 资金融通C 信息提供D 支付结算答案:B解析:资金融通是金融机构最基本、最核心的功能,通过将资金从盈余方转移到短缺方,实现资源的优化配置。

3、以下属于存款类金融机构的是()A 投资银行B 保险公司C 储蓄银行D 信托公司答案:C解析:储蓄银行主要通过吸收公众存款来获取资金,属于存款类金融机构。

投资银行主要从事证券承销等业务,保险公司主要经营保险业务,信托公司主要从事信托业务,它们都不是以吸收存款为主要资金来源。

4、金融机构在金融市场上充当()A 资金需求者B 资金供给者C 中介机构D 以上都是答案:D解析:金融机构在金融市场上既可以是资金需求者,通过发行金融工具筹集资金;也可以是资金供给者,将资金投资于各种金融资产;同时还充当着资金融通的中介机构,促进资金的流动和配置。

5、以下关于中央银行的表述,错误的是()A 是发行的银行B 是银行的银行C 以盈利为目的D 是政府的银行答案:C解析:中央银行不以盈利为目的,而是代表国家制定和执行货币政策,维护金融稳定,为政府提供金融服务。

二、判断题1、金融机构的经营风险比一般企业小。

()答案:错误解析:金融机构经营的是货币资金,面临着信用风险、市场风险、操作风险等多种风险,其经营风险并不比一般企业小。

2、所有金融机构都受到严格的金融监管。

()答案:正确解析:金融机构的业务活动对经济和金融体系的稳定具有重要影响,因此大多数金融机构都受到严格的监管,以防范金融风险和保护投资者利益。

3、商业银行是唯一能够创造存款货币的金融机构。

()答案:错误解析:在现代金融体系中,除了商业银行,中央银行通过货币发行也能创造货币,一些具有类似银行功能的非银行金融机构在一定条件下也可能创造货币。

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Chapter ThreeThe Financial Services Industry: Insurance CompaniesChapter OutlineIntroductionLife Insurance Companies∙Size, Structure, and Composition of the Industry∙Balance Sheet and Recent Trends∙RegulationProperty-Casualty Insurance∙Size, Structure, and Composition of the Industry∙Balance Sheet and Recent Trends∙RegulationGlobal IssuesSummarySolutions for End-of-Chapter Questions and Problems: Chapter Three1. What is the primary function of an insurance company? How does this function comparewith the primary function of a depository institution?The primary function of an insurance company is to provide protection from adverse events. The insurance companies accept premium payments in exchange for compensation in the event that certain specified, but undesirable, events occur.The primary function of depository institutions is to provide financial intermediation for individual and corporate savers. By accepting deposits and making loans, depository institutions allow savers with predominantly small, short-term financial assets to benefit from investments in larger, longer-term assets. These long-term assets typically yield a higher rate of return than short-term assets.2. What is the adverse selection problem? How does adverse selection affect the profitablemanagement of an insurance company?The adverse selection problem occurs because customers who are most in need of insurance are most likely to acquire insurance. However, the premium structure for various types of insurance typically is based on an average population proportionately representing all categories of risk. Thus the existence of a proportionately larger share of high-risk customers may cause the premium revenue received by the insurance provider to underestimate the necessary revenue to cover the insured liabilities and to provide a reasonable profit for the insurance company.3. What are the similarities and differences among the four basic lines of life insuranceproducts?The four basic lines of life insurance products are (1) ordinary life; (2) group life; (3) industrial life; and (4) credit life. Ordinary life is sold on an individual basis and represents the largest segment (~60%) of the life insurance market. The insurance policy can be structured as p ure life insurance (term life) or may contain a savings component (whole life or universal life). Group policies (~40%) are similar to ordinary life insurance policies except that they are centrally administered, providing cost economies in evaluating, screening, selling, and servicing the policies. Industrial life (<1.0%) has largely been replaced by group life since cost economies have made group life more affordable. Industrial life was historically marketed to individuals who would make small, very frequent payments and would require personal collection services. Credit life (<2.0%) typically is term life sold in conjunction with some debt contract4. Explain how annuity activities represent the reverse of life insurance activities.A typical life insurance contract requires a periodic payment by one party for a promised payment of either a lump sum or an annuity if a particular event occurs, such as death or an accident. An annuity represents a reverse contract where the party purchases the right to receive periodic payments depending on the market conditions. The contract may be initiated by investing a lump sum or by making periodic payments before the annuity payments begin.5.Explain how life insurance and annuity products can be used to create a steady stream of cash disbursements and payments to avoid either paying or receiving a single-lump sum cash amount.A life insurance policy (whole life or universal life) requires regular premium payments that entitle the beneficiary to the receipt of a single lump sum payment. Upon receipt of such a lump sum, a single annuity could be obtained which would generate regular cash payments until the value of the insurance policy is depleted.6. a. Calculate the annual cash flows of a $1 million, 20-year fixed-payment annuity earninga guaranteed 10 percent per annum if payments are to begin at the end of the current year.The annual cash flows are given by X:⎥⎦⎤⎢⎣⎡=1001011000,000,1$10.).( - X )PVA ( X = -2020= n %, = iwhere PVA is obtained from the present value annuity tables with 1 = 10 percent and n = 20 years. The value for X is $117,459.62.b. Calculate the annual cash flows of a $1 million, 20-year fixed-payment annuity earninga guaranteed 10 percent per annum if payments are to begin at the end of year five.In this case, the first annuity is to be received five years from today. The initial sum today will have to be compounded by four periods to estimate the annuities:X = $171,972.64c. What is the amount of the annuity purchase required if you wish to receive a fixedpayment of $200,000 for 20 years? Assume that the annuity will earn 10 percent per annum. The required payment is the present value of $200,000 per year for 20 years at 10 percent.⎥⎦⎤⎢⎣⎡=1001011000,200$000,200$74.712,702,1$10.).( - )PVA ( = -2020= n %, = i7. You deposit $10,000 annually into a life insurance fund for the next 10 years, after which time you plan to retire.a. If the deposits are made at the beginning of the year and earn an interest rate of 8percent, what will be the amount of retirement funds at the end of year 10?⎥⎦⎤⎢⎣⎡-====)08.1(08.01)08.1(000,10$000,10$87.454,156$1010%,8Begn i FVAb. Instead of a lump sum, you wish to receive annuities for the next 20 years (years 11through 30). What is the constant annual payment you expect to receive at the beginning of each year if you assume an interest rate of 8 percent during the distribution period?In this case, the first annuity is to be received ten years from today. The amount ofretirement funds at the end of year ten (the answer to part (a) of $156,454.87) will be paid out over twenty years with the first payment to be received immediately.X = $14,754,88c. Repeat parts (a) and (b) above assuming earning rates of 7 percent and 9 percent duringthe deposit period, and earning rates of 7 percent and 9 percent during the distribution period. During which period does the change in the earning rate have the greatest impact? Deposit Value atDistribution Annual Period 10 Years Period Payment 7 percent $147,835.99 7 percent $13,041.759 percent$14,857.729 percent $165,602.93 7 percent $14,609.11 9 percent $16,643.32If you earn only 7 percent during the deposit period, earning 9 percent during thedistribution period will barely allow you to better the distribution of the 8 percent/8 percent pattern in parts (a) and (b). But if you earn 9 percent during the deposit period, the distribution amount at 7 percent will almost match the 8 percent/8 percent pattern. 8.a. Suppose a 65-year-old person wants to purchase an annuity from an insurance companythat would pay $20,000 per year until the end of that person’s life. The insurance company expects this person to live for 15 more years and would be willing to pay 6 percent on the annuity. How much should the insurance company ask this person to pay for the annuity?98.244,194$000,20$15%,6====n r xPVA sum Lumpb. A second 65-year-old person wants the same $20,000 annuity, but this person is muchhealthier and is expected to live for 20 years. If the same 6 percent interest rate applies, how much should this healthier person be charged for the annuity?42.398,229$000,20$20%,6====n r xPVAsum Lumpc. In each case, what is the difference in the purchase price of the annuity if thedistribution payments are made at the beginning of the year? For 15 years, the lump sum is $205,899.68. For 20 years, the lump sum is $243,162.33. 9.Contrast the balance sheet of a life insurance company with the balance sheet of acommercial bank and that of a savings association. Explain the balance sheet differences in terms of the differences in the primary functions of the three organizations.Life insurance companies have long-term liabilities because of the life insurance products that they sell. As a result, the asset side of the balance sheet predominantly includes long-term government and corporate bonds, corporate equities, and a declining amount of mortgageproducts. The asset side of a commercial bank’s balance sheet is comprised primarily of short - and medium-term loans to corporations and individuals and some treasury securities. The principal asset category for a savings association is long-term mortgages.In effect, all three companies use large degrees of financial leverage to fund assets that primarily consist of debt securities. While the face value of deposits is fixed for banks and savingsassociations, the composition of liabilities for insurance companies is stochastic. The primary liability category for a life insurance company is policy reserves that reflect the expected payment commitments on existing policy contracts. Insurance companies also sell short- and medium-term debt instruments called GICs that are used to fund their pension plan business. The liabilities of savings associations are primarily short-term deposit accounts, while banks utilize short-term deposits and short-term borrowed funds, depending on the size of the bank.10. Using the data in Table 3-2, how has the composition of assets of U.S. life insurancecompanies changed over time?Table 3-2 indicates that life insurance companies have increased their holdings of bonds and stocks and decreased their holdings of mortgages and policy loans since the 1920s and 1930s. Government securities comprise the second largest component, although the proportion seems to be decreasing in recent years as the yields have decreased.11. How do life insurance companies earn profits?Insurance firms earn profits by taking in more premium income than they pay out in policy payments. Firms can increase their spread between premium income and policy payouts in two ways. The first way is to decrease future required payouts for any given level of premium payments. This can be accomplished by reducing the risk of the insured pool (provided the policyholders do not demand premium rebates that fully reflect lower expected future payouts).The second way is to increase the profitability of interest income on net policy reserves. Since insurance liabilities typically are long term, the insurance company has long periods of time to invest premium payments in interest earning asset portfolios. The higher is the yield on the insurance company's investments, the greater is the difference between the premium income stream and the policy payouts (except in the case of variable life insurance) and the greater is the insurance company's profitability.Because junk bonds offer high yields, they offer insurance companies an opportunity to increase the return on their asset portfolio. However, junk bonds are more risky than government or investment grade corporate bonds. As a result of the recent failures of some life insurance firms, the NAIC’s proposed new Model Investment Law has limited the holding of junk bonds in the asset portfolios of insurance companies.12. How would the balance sheet of a life insurance company change if it offered to run aprivate pension fund to another company?The primary change in the balance sheet of a life insurance company would be an increase in the liability accounts that reflect these pension plans. Guaranteed investment contracts (GICs) and separate account categories likely would increase, depending on the type of pension plans provided to the customers. The premiums and contributions would be invested in the normal asset categories of the insurance company, except in cases where the pension fund requires aggressive investment strategies. In this case, the funds may be invested in specific equity mutual funds.13. How does the regulation of insurance companies differ from the regulation of depositoryinstitutions? What are the major pieces of life insurance regulatory legislation? Insurance companies are more exclusively subject to state regulations compared to banks and thrifts. Although there are national insurance organizations such as the National Association of Insurance Commissioners, the companies are chartered and regulated at the state level. Banks and thrifts are typically subject to both national and state oversight. While both banks and insurance companies receive regulatory scrutiny as to the quality of their assets and liabilities, bank regulations also dictate minimum reserve and capital requirements. Banks have more geographic restrictions. Both insurance companies and banks are limited in the products that they can offer. The primary legislation is the McCarran-Ferguson Act of 1945. This legislation provides that federal regulation is subordinate to state regulation.14. How do state guarantee funds for life insurance companies compare with deposit insurancefor commercial banks and thrifts?State guarantee funds are different from deposit insurance in several ways. First, the insurance guarantee funds are administered by the life insurance companies as opposed to a separate company like the FDIC for deposit institutions. Second, insurance companies do not pay premiums into the guarantee fund until after the failure of an insurance company. The FDIC requires annual premium payments from all deposit institutions. Third, while the FDIC requires premium payments to be based on the amount of deposits and the risk of the assets of the banks,the contributions by insurance companies typically are based on the relative amount of premium income received by the surviving insurance companies. Finally, because contributions to the insurance guarantee funds are requested only after the failure of a company, the transmission of the benefits to the policyholders occurs only after a reasonable delay. In contrast, the FDIC normally pays depositors within a few days after the failure of a commercial bank or a thrift.15. What are the two major activity lines of property-casualty insurance firms?The two major lines of property-casualty insurance are:a) Property insurance: Insurance compensating the insured, fully or partially, for personalor commercial property damage as a result of accidents and other events; andb) Liability insurance: Insurance compensating a third party, fully or partially, because itspersonal or commercial property was damaged as a result of the accidental actions ofthe insured.In many cases, property and liability insurance is sold together, such as personal or commercial multiple peril and auto insurance. Fire and allied lines usually are sold as property insurance only. Liability insurance is sold separately for coverage such as malpractice or product liability hazards. In addition, reinsurance provides a means for primary insurers to pool their risk by transferring some of the risk and premium to a reinsurer.16. How have the product lines of property-casualty insurance companies changed over time?Product lines based on net premiums typically are included in the property-casualty insurance arena. The largest decreases have been in the fire and allied categories, while the multiple peril (or umbrella) and liability policies have shown the largest increases. The changes are related in that much of the decreased coverage has been subsumed into the multiple peril policies.17. Contrast the balance sheet of a property-casualty insurance company with the balance sheetof a commercial bank. Explain the balance sheet differences in terms of the differences in the primary functions of the two organizations.The balance sheet of a PC company is similar to that of a life insurance company. Long-term financial assets such as bonds, common equities and preferred stock comprise the majority of the assets, while loss reserves, loss adjustment expenses, and unearned premiums dominate the liabilities. In contrast, short-and medium-term financial assets dominate the asset side of the balance sheets of most banks, and borrowed funds in the form of deposits are the primaryliability for commercial banks. Whereas banks provide time and size intermediation for depositors, PC insurance companies use premium payments to provide assurance against certain types of risk for customers. For a bank the deposits represent borrowed funds, while the premiums to an insurance company represent the actual price for the risk coverage.18. What are the three sources of underwriting risk in the property-casualty insurance industry?The three sources of underwriting risk in the PC industry are (a) unexpected increases in loss rates, (b) unexpected increases in expenses, and (c) unexpected decreases in investment yields. Loss rates are influenced by whether the product lines are property or liability (with the latter being less predictable), whether they are low-severity high-frequency lines or high-severity low-frequency lines (with the latter being more difficult to estimate), and whether they are long-tail or short-tail lines (with the former being more difficult to estimate). Loss rates also are affected by product and social inflation. Unexpected increases in expenses are a result of increases in commission costs to brokers, general expenses, taxes and other expenses related to acquisitions. Finally, investment yields depend on the stock and bond markets as well as on the asset allocations of the portfolios.19. How do unexpected increases in inflation affect property-casualty insurers?Inflation generally has an adverse effect on the cost of providing the benefits that have been purchased by the insured, particularly if the policy is written in terms of the replacement cost of the asset and the premiums are not adjusted for inflation. In addition, the investment value of the bonds and other fixed-rate assets of insurers from which claims proceeds are derived may decrease in value from unexpected inflation.20. Identify the four characteristics or features of the perils insured against by property-casualty insurance. Rank the features in terms of actuarial predictability and total losspotential.∙Property versus liability: Maximum levels of losses are more predictable for property lines than for liability lines.∙Severity versus frequency: Loss rates are more predictable on low-severity, high-frequency lines than they are on high-severity, low-frequency lines.∙Time of exposure: The extent of expected losses is more difficult for long-tail risk exposure phenomenon than for short-tail exposures.∙Inflation: The inflation risk of property lines is likely to reflect the underlying inflation of the economy, while the inflation risk of liability lines may be subject to the changing values or social risk of the society.21. Insurance companies will charge a higher premium for which of the insurance lines listedbelow? Why?a. Low-severity, high-frequency lines versus high-severity, low-frequency lines.Insurance companies have a more difficult time predicting the severity of losses for high- severity low-frequency lines of business, such as earthquakes and hurricanes. In addition, these catastrophic events cause severe damage, meaning the individual risks in the insured pool are not independent. As a result, premiums for high-severity low-frequency lines will be charged higher premiums than low-severity high-frequency lines.b. Long-tail versus short-tail lines.Similarly, losses in long-tail lines of business are harder to predict than in short-tail lines, because claims can be made years after the premiums have been made. Thus, premiums in this category of business will be higher. Modern day examples of such lines includecoverage for product liabilities, such as exposure to asbestos or chemicals like agent-orange.22. What does the loss ratio measure? What has been the long-term trend of the loss ratio?Why?The loss ratio measures the actual losses incurred on a line of insurance relative to the premium earned on the line. A ratio greater than 100 implies that the premiums earned did not cover the losses on the product line. The loss ratio has increased from the 60 percent range in the early 1950s to 80 percent range in the late 1980s and early 1990s. Increases in social inflation and the long-tail risk exposure phenomenon have caused some insurance companies to invest in shorter-term assets that have lower yields and thus generate lower premium earnings. In addition, increased coverage in areas with higher uncertainty of losses has occurred within the industry. 23. What does the expense ratio measure? Identify and explain the two major sources ofexpense risk to a property-casualty insurer. Why has the long-term trend in this ratio been decreasing?The expense ratio measures the expenses incurred relative to the premiums written. Expense risk is comprised primarily of loss adjustment expenses, which relate to the cost surrounding the loss settlement process, and commission costs paid to insurance brokers and sales agents in an effortto attract business. Large insurance companies have found expense efficiencies in using their own brokers rather than using independent brokers to sell insurance.24. How is the combined ratio defined? What does it measure?The combined ratio is equal to the loss ratio plus the expense ratio. The ratio may be stated before or after dividends paid to policyholders. The ratio basically measures the underwiting profitability of an insurance line. If the combined ratio is less than 100, the premiums on the insurance have been sufficient to cover both losses and expenses on line.25. What is the investment yield on premiums earned? Why has this ratio become so importantto property-casualty insurers?In cases where the combined ratio is greater than 100, the insurer must rely on investment income from premiums to achieve profitability. Since the 1980s, the combined ratio consistently has been greater than 100. That is, the loss ratio and the expense ratio have exceeded the amount of premiums received on the insurance lines. Thus, the yield on invested premiums has become critical in the overall profitability of the property-casualty insurance industry.26. Use the data in Table 3-8. Since 1980, what has been the necessary investment yield forthe industry to enable the operating ratio to be less than 100 in each year? How is thisrequirement related to the interest rate risk and credit risk faced by the property-casualty insurer?The minimum investment yield required to achieve an operating ratio of 100 or less ranged from a low of 0.1 percent in 2003 to a high of 16.3 percent in 1985. The average yield over this period (for the years reported) was 7.9 percent. In effect, PC insurers required an average annual yield of 7.9 percent on invested premiums during a time when interest rates were seldom this high and operating losses were significant. Year-by-year values are given below based on data given in Table 3-8.Combined Required MinimumRatio after Combined InvestmentYear Dividends Ratio Yield1980 103.1% 100.0% 3.1%1985 116.3% 100.0% 16.3%1990 109.6% 100.0% 9.6%1995 106.4% 100.0% 6.4%1997 101.6% 100.0% 1.6%2000 110.5% 100.0% 10.5%2001 116.0% 100.0% 16.0%2002 107.2% 100.0% 7.2%2003 100.1% 100.0% 0.1%Arithmetic Average = 7.9%Minimum =0.1%Maximum = 16.3%27. An insurance company’s projected loss ratio is 77.5 percent, and its loss adjustmentexpense ratio is 12.9 percent. The company estimates that commission payments anddividends to policyholders will be 16 percent. What must be the minimum yield oninvestments to achieve a positive operating ratio?The combined ratio = 77.5% + 12.9% + 16.0% = 106.40%. In order to be profitable, the yield on investments has to be greater than 6.40%.28. a. What is the combined ratio for a property insurer who has a simple loss ratio of 73percent, a loss adjustment expense of 12.5 percent, and a ratio of commissions andother acquisition expenses of 18 percent?The combined ratio is 73% + 12.5% + 18% = 103.5%.b. What is the combined ratio adjusted for investment yield if the company earns aninvestment yield of 8 percent?The combined ratio adjusted for investment yield is 95.5%.29. An insurance company collected $3.6 million in premiums and disbursed $1.96 million inlosses. Loss adjustment expenses amounted to 6.6 percent, and dividends paid topolicyholders totaled 1.2 percent. The total income generated from the company’sinvestments was $170,000 after all expenses were paid. What is the net profitability indollars?Pure loss = $3.6 million - $1.96 million = $1.64 million, or $1.640,000.Expenses = 0.066 x $3,600,000 = $237,600.Dividends = 0.012 x $3,600,000 = $43,200.Investment returns = $170,000.Net profits = $1,529,200.30. What is the underwriting cycle for PC insurers? How do the premiums per unit of riskdiffer in the trough versus the peak of an underwriting cycle?The underwriting cycle reflects the tendency for PC losses to occur in cycles. When large or many catastrophes occur in relatively short periods of time, the PC insurance industry raises the premiums on similar-size coverage. This activity occurs during the trough or down phase of the underwriting cycle. As the relative occurrence of catastrophes slows, the premiums per coverage amount tend to soften or decrease. This represents the recovery or peak phase of the underwriting cycle.31。

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